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Start-up Your Wealth Management

As a wealth management practice, we interact with entrepreneurs all along the growth curve. However, there seems to be a common misconception that advisors are only helpful once an entrepreneur has exited their company. Most entrepreneurs think that they don’t need advice on their “wealth” until they have struck it big or exited their company. These entrepreneurs miss out on the value-add component of working alongside an advisor throughout the different phases of building a business. When choosing an advisor, entrepreneurs should place just as much importance on this decision as they do with their decisions relating to their business. After all, this is a long term business decision. You shouldn’t have an advisor for now and then one for when you are wealthy. Your advisor should be your partner through the journey. When you are working with an advisor, do they do these things for you and are you aware of them?

Holistic Approach

What does this mean? Well, under a more traditional advisory this may mean that they consider all investable assets. In a true holistic approach advisors should take into consideration their client’s businesses as well. Advisors can consider the investment into their clients business as a type of alternative asset class just like art or even collectibles. A holistic approach also brings macroeconomic factors that are specific to the entrepreneurs business into consideration. Understanding current and future trends in each industry will better serve the entrepreneur in an advisory role. We believe that this is what being holistic truly represents when working with an entrepreneur’s investments. We need to take a look at the entire picture under multiple lenses. An advisor should want to build your net worth, not just your investment portfolio. Being cognizant and understanding of the potential underlying risks that face your business and your portfolio will help an entrepreneur navigate throughout each of the different stages of the business cycle.

Risk Management

Because we believe that entrepreneurs look at the markets differently, they view risk differently. Depending on how mature the company is and where the business is going will affect the overall risk in their portfolio. The one difference is that the business could be similar to holding a highly concentrated position rather than being in a diversified portfolio. Assuming an entrepreneur has not had any previous financial successes, the highest concentration of risk could be in their newly formed business. A startup that is high risk or a stable mature company will determine a suitable investment strategy that compliments a member’s specific risk tolerances. It has been estimated that around 80% of startups fail. With those statistics, having a diversified portfolio looks relatively risk averse when comparing the two.

Consultative Relationship

Behind every successful company there is typically a great CFO. A trusted advisor should strive to act as a personal CFO so that an entrepreneur can do what they do best, build a company. In addition, they should advise you throughout all the phases of your business. Whether it is determining the best ways to raise capital or how to determine the best exit strategy for your business, they should be able to offer assistance. Having experience with a proven track record is also meaningful. If your advisor specializes in entrepreneurial wealth management they will be able to offer advice that has been crafted from experiencing the ups and downs of years of advising others businesses. A CFO understands all aspects of your business; being able to offer informed guidance on your entrepreneur-specific issues and complicated financial needs. A personal CFO should understand your whole financial picture. A personal CFO will be the centralized figure amongst all of you other trusted professionals such as accountants, attorneys, and bankers. They will coordinate and work alongside to ensure seamless communication and execution. All so that you can remain focused on what is important: running and building your business.

According to the Wall Street Journal, 75% of entrepreneurs identified a desire to build wealth as an important motivation in becoming an entrepreneur. And that is exactly what they are doing. Due to the advancement of technology, world globalization, and the rise of emerging markets, entrepreneurship is now a significant source of wealth. Entrepreneurial wealth now exceeds inherited wealth and is not showing any signs of slowing down. Ultimately, entrepreneurs need to be aware the different roles an advisor can play throughout the different phases of their business so that they can avoid some of the pitfalls and hurdles others have faced. A trusted advisor could end up being a valuable asset to an entrepreneur if used in the right capacity.