A financial formula for midsize businesses

The owners of midsize businesses are less agile than small businesses, yet frequently lack large businesses’ resources. Also, many midsize businesses owners may have a disproportionate share of their wealth tied up in their companies, directly linking the value of their businesses to the financial futures of their families.

The good news is that there are benefits to taking a thoughtful, systematic approach to addressing your financial challenges while continuing to expand your business.

To understand the specific financial challenges of today’s midsize businesses owners fully, I interviewed several local people in depth, including midsize business owners and related professionals. I selected each for his or her ability to provide insights into the financial issues faced by midsize business owners today.

These are the key challenges I heard in my conversations:

▶ Current business environment. Many interviewees cited issues such as health care reform, increased competition, globalization and the regulatory environment as important concerns as they endeavored to further grow their businesses.

▶ Optimizing retirement savings. Several business were concerned about helping both themselves and their employees to maximize their retirement savings through a defined contribution plan. Given the many options and sometimes-complex, they expressed uncertainty that their companies were offering the best possible plan

▶ Refining succession planning. While many business owners reported giving little or no thought to succession planning when their businesses were smaller, it is now on the minds of many. While many had not yet developed detailed succession plans, they were aware of the importance of doing so. Those who were part of family-owned businesses where ownership was to be transferred to family were particularly sensitive to the need for astute succession planning.

▶ Philanthropic concerns. Many business owners are beginning to consider their legacies and the best way to fulfil their charitable goals. With much of their net worth in their businesses, they understand that fulfilling these goals may be highly dependent on a profitable succession.

Although these issues can significanly challenge some midsize business owners, they can be systematically addressed to help increase the likelihood of achieving their goals.

Given their complex and varied financial needs, midsize business owners can consider using a wealth management approach. To define wealth management, I use this formula:

WM = IM + AWM + RM

The first element of wealth management (WM) is investment management (IM). As I mentioned, this is the major focus of many financial advisers, and astute investment management can be the foundation of midsize business owners’ ability to address their most important goals.

However, my interviews revealed that many midsize business owners need more than just assistance in managing their investments. Thus, I have the second element of wealth management, advanced wealth management. Advanced wealth management addresses:

▶ Wealth enhancement: mitigating tax burdens

▶ Wealth transfer: helping ensure that heirs are taken care of

▶ Wealth preservation: helping to protect loved ones and preserve assets

▶ Charitable giving: maximizing the impact of one’s charitable gifts

Since no one person can be an expert in each of these complex areas, wealth managers work closely with other professional advisers, such as CPAs, attorneys and insurance specialists, to address these issues. Depending on the preference of their clients, they may do this in conjunction with the clients’ current professional advisors.

This brings us to the third element of wealth management, relationship management (RM). To fully understand their clients’ most important goals, values and challenges — both now and long into the future — wealth managers must cultivate trusting, long-term consultative relationships with those clients.

Not everyone wants to work with a financial adviser. If you do choose to work with a professional, consider one who uses the wealth management approach.

Michael Chudd is senior vice president – wealth management at UBS Financial Services Inc. in Las Vegas. He has been with UBS for 18 years.

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