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For workers and businesses alike, Atlanta is one of the hottest relocation destinations in the country – despite its relatively high cost of living and corporate tax rates. In keeping with its status as a bustling but complex market, I'm noticing an exciting trend among new small businesses here that has implications nationwide.
Small business owners cope with phases of development – from startup through growth and perhaps a sale – as they crop up, their last-minute efforts complicated by a lack of planning and due diligence and having their personal and business finances intertwined.
These days, however, many startup owners take a more strategic view of change management. Instead of waiting for broadly predictable events to unfold, they're acting early to ensure they're ready for whatever comes, whenever it comes.
I see this in the smart new ways startups are tackling the top five financial management concerns they face:
1. Raising capital
Small businesses are often capital-intensive, especially in the early years. This is a hard time in the life of a business, with owners often more concerned about securing capital – any capital – than worrying about obtaining the right kind of capital. The “underdog” stories we’ve all heard about entrepreneurs piling on credit-card debt to launch enterprises illustrate this point.
New business owners understand that determining optimal capital solutions calls for a deep analysis of their current assets, liabilities, and potential sources of financing to determine the best capital fit for the near- and long-term health of the business. Having this analysis on hand streamlines their capital-raising efforts, saving them time and money early on – and expensive headaches down the road.
2. Business lifecycle planning
New business owners have to make big and far-reaching decisions from the beginning. The list includes:
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- Which legal entity should we organize under?
- What's the optimal mix of debt, owner equity, and outside capital?
- How should I structure retirement plans and compensation for me and my employees?
As time passes, additional questions arise as owners ponder succession plans and potential exits. New business owners often have access to a team of experienced advisors who will partner with tax professionals and attorneys to recommend solutions and plans for your company’s future. In turn, businesses work with their outside teams to cut through complexities while preparing for the next phase – be it further growth, a move into retirement, or the owner’s next venture.
3. Cash-flow management
Once a business is up and running, business owners enjoy some flexibility in terms of drawing cash from their business. But it can be difficult to determine what’s best for owner and business alike. Smart new business owners are taking systematic approaches to optimize cash-flow management by structuring different combinations of salary, ownership distributions, and reinvestment based on the business-entity structure in play. This helps businesses seize on ways to effectively balance business growth, personal income, and tax efficiency.
4. Asset allocation
For many small business owners, the business is their largest investment. While there’s no denying the potential benefits of this concentration, it’s risky in terms of prudent asset allocation to concentrate so much capital in a single illiquid investment.
To get around this problem, I see more owners working with wealth managers to weigh the risks they face from overconcentration. From there, these owners and their financial advisors are taking steps to construct diversified portfolios of market investments with low correlations to the operating businesses in question.
5. Business and personal financial planning
It's natural to treat your small business with the love, care, and attention you would give a child. It’s your baby after all, and it calls for hours of hard work, planning – and, let’s face it, more than a few sleepless nights.
While it's easy to let other things slide as you concentrate on business development, I see that business owners have begun to view their personal financial plans as the driver of their financial lives – not to the exclusion of the business, but with the business as part of a larger portfolio. This thinking lets owners zero in on goals, whether it’s to retire early, work three days a week, or lead their business through its next phase of development.
These owners recognize something others forget: When you own a business, you’re free to structure your business, and your role in it, precisely as you please.
Atlanta is witnessing a strategic shift among small-enterprise owners. Rather than reacting to financial challenges and opportunities as they arise, local entrepreneurs are embracing new perspectives on change management by preparing for change beforehand. From capital raising to cash-flow management, asset allocation to business and personal financial planning, forward-looking business owners are cultivating holistic approaches that position them for success at every stage of their ownership journey.
Nick Fazio is an associate relationship manager with Regent Peak Wealth Advisors in Atlanta.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
