Author: eric

Working with business owners over the years, I’ve noticed a familiar pattern: many successful entrepreneurs are experts at running their businesses but often overlook the bigger financial picture.

You might have your daily operations running smoothly, your cash flow managed, and your taxes handled by a good CPA. Those fundamentals are essential, but they’re just the starting point for comprehensive small business financial planning.

The most successful business owners I work with understand that their business isn’t just a source of income, it’s a wealth-building tool that should be coordinated with their personal financial goals. They’ve moved beyond basic business banking to create integrated strategies that serve both their business needs and their family’s long-term financial security.

Let me share what that comprehensive approach looks like and how it can make a meaningful difference in building business stability and personal wealth.

The Integration Challenge

One of the biggest opportunities with business owners is treating their business and personal finances as separate entities instead of coordinating them as part of an integrated strategy.

Your business financial decisions directly impact your personal financial situation, and vice versa. Effective small business financial planning recognizes and uses these connections to your advantage.

Cash Flow vs. Wealth Building

Managing monthly cash flow is essential for business survival, but it’s different from building long-term wealth. Many business owners get so focused on monthly operations that they miss opportunities for strategic wealth accumulation.

For example, how you pay yourself from your business (salary vs. distributions vs. retained earnings) has significant implications for your personal tax situation, retirement savings capacity, and overall financial planning.

Tax Strategy Coordination

Business and personal tax planning should work together, not against each other. The timing of income recognition, equipment purchases, retirement contributions, and other financial decisions can be coordinated to optimize your overall tax situation.

Some business owners make decisions that save business taxes but create personal tax problems, or vice versa. A coordinated approach often produces better overall results.

When Small Business Financial Planning Gets Complex

Based on experience working with various business owners, here are situations where business financial planning becomes more sophisticated:

Profitable Growth Management

Success creates new challenges. As your business grows, you face decisions about reinvestment, cash management, and scaling operations while maintaining profitability.

Growing businesses often experience cash flow timing issues even when they’re profitable. Revenue might increase, but you’re investing in inventory, equipment, staff, and facilities. Managing this growth cycle requires careful planning.

Business Structure Optimization

Many businesses start as sole proprietorships or simple LLCs, but as they grow, different entity structures might provide better tax advantages or liability protection.

The choice between S-Corp elections, traditional corporations, or other structures depends on your income level, growth plans, and personal financial goals. These decisions have long-term implications for both business operations and personal wealth building.

Employee Benefits and Retirement Plans

As you add employees, you face health insurance, retirement benefits, and other compensation decisions. These choices affect your business expenses, benefits, and ability to attract quality staff.

Some business owners don’t realize they can structure employee benefits in ways that provide maximum advantage to themselves while still offering meaningful benefits to their team.

Key Components of Comprehensive Business Financial Planning

When we work with business owners on small business financial planning, here’s what that typically includes:

Cash Flow Management and Forecasting

This goes beyond basic budgeting to include seasonal planning, growth funding, and maintaining appropriate cash reserves.

Many businesses have seasonal fluctuations or cyclical patterns that require planning. Systems predicting and managing these patterns can prevent cash flow crises and reduce stress.

Business and Personal Goal Coordination

Your business should serve your personal financial goals, not work against them. This means aligning business growth plans with your retirement timeline, family financial needs, and lifestyle objectives.

For example, if you want to retire in 15 years, your business strategy should include building transferable value and planning for succession or sale.

Risk Management

Business insurance, liability protection, and financial risk management become more critical as your business and personal wealth grow.

This includes evaluating business insurance coverage, personal liability protection, and coordination between business and personal insurance policies to avoid gaps or unnecessary duplication.

Exit Planning and Succession

Even if retirement is decades away, thinking about how you’ll eventually transition out of the business affects current financial decisions.

Building a business that can operate without you, creating transferable value, and planning for succession (whether to family, employees, or third parties) takes time and should influence current business structure decisions.

The Owner’s Compensation Strategy

One area where I see significant opportunities is how business owners pay themselves. This decision significantly affects taxes, retirement savings, and personal financial planning.

Salary vs. Distributions

The mix of salary and distributions affects your payroll taxes, Social Security benefits, and retirement plan contribution capacity. The optimal approach depends on your business structure, income level, and personal financial goals.

Timing of Distributions

Taking money out of the business can affect your personal tax situation. Strategic timing of distributions can help manage tax brackets and coordinate with other income sources.

Retirement Plan Maximization

Business owners often have access to more powerful retirement savings options than employees, including SEP-IRAs, solo 401(k)s, and defined benefit plans. The choice depends on your income, number of employees, and retirement timeline.

Some business owners can contribute significantly more to retirement accounts than they realize, potentially saving substantial amounts in current taxes while building retirement security.

Common Business Financial Planning Mistakes

Based on working with numerous business owners, here are patterns I see that can be costly:

Keeping Everything in the Business

Some owners accumulate large cash balances in business accounts instead of taking strategic distributions and investing for personal wealth building. While maintaining working capital is important, excessive business cash doesn’t typically provide optimal investment returns.

Ignoring Personal Financial Goals

Business owners sometimes get so focused on business growth that they neglect personal financial planning. Your business should be a vehicle for achieving personal financial security, not an end in itself.

Mixing Business and Personal Expenses

While some mixing is unavoidable, maintaining clear boundaries helps with tax compliance and makes business financial analysis more accurate. It also helps when planning for a business sale or transfer.

Inadequate Record Keeping

Financial records are essential for tax compliance, business analysis, and eventual valuation. Many owners don’t realize that poor record keeping can significantly reduce business value when it’s time to sell.

Technology and Business Financial Planning

Modern business owners have access to financial management tools that can significantly simplify business financial planning:

Automated Accounting Systems

Cloud-based accounting platforms can automate many bookkeeping tasks and provide real-time financial reporting. This saves time and provides better information for economic decision-making.

Cash Flow Forecasting Tools

Software that connects to your bank accounts and accounting system can provide cash flow projections and help identify potential problems before they become critical.

Integration Between Business and Personal Planning

Some financial planning tools can analyze business and personal financial situations together, providing a more complete picture for decision-making.

However, technology has limitations. While these tools can organize information and perform calculations, they typically can’t provide strategic guidance for complex situations or help coordinate business decisions with personal financial planning.

Working with Professional Advisors

Most successful business owners work with a team of professional advisors, including:

CPA or Tax Professional

Someone who understands business tax law and can help coordinate business and personal tax strategies.

Attorney

For business structure, contracts, and legal compliance issues.

Financial Advisor

To help coordinate business financial decisions with personal wealth building and retirement planning.

Business Banker

A banker who understands business banking needs and can provide appropriate credit facilities and cash management services.

The key is finding advisors who understand how these different areas connect and can work together rather than in isolation.

Questions to Consider

Here are some questions that might help you evaluate your current small business financial planning approach:

About Your Strategy:

• Do you have written financial goals for both your business and personal situation?
• How do you coordinate business financial decisions with personal financial planning?
• When did you last review your business structure for tax efficiency?

About Your Operations:

• Do you have reliable cash flow forecasting?
• Are you taking advantage of available retirement savings opportunities?
• How do you determine the optimal way to pay yourself from the business?

About Your Future:

• What’s your plan for eventually transitioning out of the business?
• Are you building transferable business value?
• How does your business timeline coordinate with your retirement plans?

If you’re uncertain about several of these areas, it might be worth having a conversation with advisors who specialize in business financial planning.

The Coordination Advantage

The most successful business owners I work with consider business financial planning part of their overall wealth-building strategy. They understand that business decisions and personal financial decisions are interconnected.

This coordinated approach often produces better results than managing business and personal finances separately. It can reduce overall taxes, improve cash flow timing, and help ensure business success translates into personal financial security.

Making It Work for Your Situation

Small business financial planning isn’t one-size-fits-all. A solo consultant has different needs than a growing manufacturing business. A service business has different considerations than a retail operation.

The important thing is having a systematic approach that addresses your specific situation and coordinates business and personal financial goals.

Your business is likely one of your largest assets and your primary source of income. Making sure it’s structured and managed to support your overall financial goals is worth the time and effort.

We keep our finger on the pulse of both business and personal financial planning because they’re too interconnected to manage separately.

What you see is what you get: if your business financial planning only covers basic banking and tax compliance, you’re missing opportunities to build wealth more effectively.

The key is a comprehensive approach recognizing the connections between business success and personal financial security.

Sources

1. Small Business Administration – Business Guide https://www.sba.gov/business-guide 
2. Internal Revenue Service – Small Business and Self-Employed https://www.irs.gov/businesses/small-businesses-self-employed 
3. U.S. Chamber of Commerce – Small Business Resources https://www.uschamber.com/co/start/strategy 
4. SCORE – Small Business Mentoring https://www.score.org 
5. National Association of Small Business Investment Companies https://www.nasbic.org 
6. Small Business Development Centers https://americassbdc.org 

This information is for educational purposes only and is not intended as investment, tax, or legal advice. Past performance is not indicative of future results. Investment advisory services offered through Summit Financial, LLC, a SEC Registered Investment Advisor. 8433595.1.

Keywords: small business financial planning, business financial planning

Meta Description: Comprehensive financial planning strategies for small business owners. Learn how to coordinate personal and business financial goals.

One of your most important investment decisions isn’t picking individual stocks or timing the market. It’s choosing between active management and passive management strategies for your portfolio.

This choice affects how much you pay in fees, the level of risk you take on, and ultimately, how much money you’ll have for retirement. After working with families for decades, I’ve seen both approaches work well and fail spectacularly, depending on the situation.

Let me explain the fundamental differences between these strategies and help you determine which approach might work better for your specific circumstances.

Understanding Active Management

Active management means professional portfolio managers make investment decisions to outperform a specific benchmark or index.

These managers research companies, analyze economic trends, and make buy and sell decisions based on their analysis. They’re betting they can beat the market through superior stock selection and timing.

How Active Management Works

Active managers typically employ teams of analysts who study financial statements, interview company executives, and evaluate market conditions. Based on this research, they decide which securities to buy, sell, or hold in the portfolio.

The goal is straightforward: deliver returns that exceed what you’d get from simply buying and holding a broad market index.

Active Management Strategies

Active managers use various approaches:

Growth Investing: Focusing on companies expected to grow faster than the overall market

Value Investing: Seeking undervalued companies trading below their intrinsic worth

Sector Rotation: Moving money between different industries based on economic cycles

Market Timing: Adjusting portfolio allocation based on market conditions

Understanding Passive Management

Passive management takes the opposite approach. Instead of trying to beat the market, passive management strategies aim to match market performance by tracking a specific index.

The most common passive approach is index fund investing, where the fund owns the same securities in the same proportions as a particular index, like the S&P 500.

How Passive Management Works

Passive funds use a rules-based approach. If you own an S&P 500 index fund, the fund manager buys all 500 stocks in the same weightings as the index.

The fund makes corresponding changes when companies are added to or removed from the index. No research team analyzes individual companies or tries to time market movements.

Types of Passive Investments

Index Funds: Mutual funds that track specific indexes

Exchange-Traded Funds (ETFs): Tradeable funds that typically track indexes

Target-Date Funds: Automatically adjust allocation based on retirement timeline

The Cost Difference

This is where the rubber meets the road for most investors.

Active Management Costs

Active management is expensive. Active funds have a higher expense ratio than passive funds, as they incur more costs for the fund manager’s expertise, research, and trading.

You’re paying for:

• Portfolio managers’ salaries
• Research teams and analysts
• Trading costs from frequent buying and selling
• Administrative overhead

Typical expense ratios for actively managed funds range from 0.5% to 2.0% annually, with many falling in the 0.8% to 1.2% range.

Passive Management Costs

Passive management strategies are much cheaper to operate. Usually, the average for passively managed ETFs and mutual funds is between 0.03% and 0.3%.

The lower costs exist because passive funds don’t need:

• Expensive research teams
• Frequent trading
• Active portfolio management decisions

Why Costs Matter

Here’s a simple example: On a $100,000 portfolio, the difference between a 0.1% expense ratio and a 1.0% expense ratio is $900 per year. Over 20 years, that difference compounds significantly.

The enemy of good is perfect, but keeping costs low is one of the few things you can control when investing.

Performance Comparison

The performance debate between active and passive management is complex and often misunderstood.

The Long-Term Picture

While active fund managers in the Eurozone saw a short-term increase in success, their long-term performance was poor, with only 4.7% of them outperforming their benchmark over 10 years.

This statistic reflects a broader pattern: while some active managers outperform in short periods, very few consistently beat their benchmarks over extended timeframes after accounting for fees.

Market Conditions Matter

Active management strategies have tended to benefit investors more in certain investing climates, while passive management strategies have tended to outperform others. For example, when the market is volatile or the economy is weakening, active managers may outperform more often than when it is not.

Active management has typically outperformed passive management during market corrections, because active managers have captured more upside as the market recovers.

This suggests that neither approach works best in all market conditions.

The Shifting Landscape

According to a study by Statista, passively managed index funds only comprised 19% of the total assets managed by investment companies in the U.S. in 2010. Still, this share had ballooned to 48% by 2023.

This massive shift toward passive management reflects investor frustration with active management fees and performance, but it also creates potential opportunities for skilled active managers.

Tax Efficiency

This aspect often gets overlooked, but it can significantly impact your after-tax returns.

Passive Management Tax Advantages

Index funds and ETFs are generally more tax-efficient because they trade less frequently. Lower turnover means fewer taxable events for shareholders.

Most passive funds only buy and sell securities when the underlying index changes, which happens infrequently.

Active Management Tax Considerations

Active managers’ frequent trading can generate more taxable capital gains distributions, especially in taxable accounts. These distributions occur whether you sell your shares or not.

However, tax-managed active funds specifically focus on minimizing tax consequences, which can help reduce this disadvantage.

When Active Management Might Make Sense

Market Inefficiencies

In less efficient markets, like small-cap stocks or emerging markets, skilled active managers may have better opportunities to add value through research and stock selection.

Specialized Strategies

Some investment strategies don’t lend themselves to passive approaches:

• Specific sector expertise
• Alternative investments
• Risk management-focused strategies

High-Net-Worth Situations

Wharton finance professor Jeremy Siegel strongly believes in passive investing, but he recognizes that high-net-worth investors have access to advisers with stronger track records. In that case, a management fee is not as burdensome.

Wealthy investors may have access to top-tier active managers with strong long-term track records.

When Passive Management Makes More Sense

Broad Market Exposure

For core holdings in large-cap U.S. stocks, passive management strategies have consistently delivered market returns at low cost.

Cost-Conscious Investors

If keeping investment costs low is prioritized, passive management strategies typically offer the most cost-effective market exposure.

Long-Term Investors

Investors with 10+ year time horizons often benefit from passive management strategies’ lower costs and consistent market exposure.

Simplified Portfolio Management

Passive approaches require less monitoring and decision-making, which appeals to investors who prefer a hands-off approach.

The Hybrid Approach

Many successful portfolios strategically use both active management and passive management strategies.

Core and Satellite Strategy

This approach uses low-cost passive funds for core market exposure (maybe 70-80% of the portfolio) and active strategies for smaller positions in specialized areas where active management might add value.

Asset Class Specific

You might use passive management strategies for efficient markets (large-cap U.S. stocks) and active management strategies for less efficient markets (small-cap international stocks).

Common Misconceptions

“Passive is Always Cheaper”

While passive management strategies are generally less expensive, not all passive funds are cheap. Some specialty index funds can have surprisingly high expense ratios.

“Active Managers Always Underperform”

While most active managers underperform after fees over long periods, some consistently skilled managers add value. The challenge is identifying them in advance.

“Index Funds Eliminate All Risk”

Passive funds still carry market risk. If the S&P 500 drops 40%, your S&P 500 index fund drops 40% too.

Making the Decision

Consider Your Situation

Investment Amount: Large portfolios may justify higher fees for active management access

Time Horizon: Longer timeframes generally favor lower-cost passive approaches

Risk Tolerance: Some investors prefer the potential for active managers to reduce downside risk

Complexity Preference: Passive management strategies require less ongoing decision-making

Questions to Ask Yourself

About Costs: Am I comfortable paying higher fees for potential outperformance?

About Control: Do I want professional managers making active decisions, or do I prefer market exposure?

About Time: How much time do I want to spend researching and monitoring managers?

About Performance: Am I satisfied with market returns, or do I need to try for better?

Implementation Considerations

Due Diligence for Active Managers

If you choose active management, research is critical:

• Review long-term track records (10+ years)
• Understand the manager’s investment process
• Evaluate fee structures carefully
• Consider manager tenure and stability

Passive Strategy Selection

Even passive management requires decisions:

• Which indexes to track
• Expense ratio comparisons
• Fund provider selection
• Rebalancing frequency

The Bottom Line

Active and passive management can work, but serve different purposes and investor needs.

Passive management strategies offer low-cost market exposure with no manager risk, making them excellent core holdings for most investors. They’re particularly effective in efficient markets and for long-term investors focused on keeping costs low.

Active management can add value in less efficient markets or through specialized strategies, but success depends heavily on manager selection. The higher costs mean active managers must outperform significantly to justify their fees.

A combination approach makes sense for most families I work with: passive management strategies for core market exposure and selective active management in areas where skilled managers might add value.

Things happen for you, not to you. But whether you choose active management or passive management, make sure your choice aligns with your goals, timeline, and comfort level with costs and complexity.

We don’t run our business on autopilot, and your investment strategy shouldn’t run on autopilot either. Whatever approach you choose, ensure you understand what you’re paying for and getting.

Sources and Additional Information

1. Morningstar: Active vs. Passive Funds Performance https://www.morningstar.com/business/insights/blog/funds/active-vs-passive-investing 
2. Hartford Funds: The Cyclical Nature of Active & Passive Investing https://www.hartfordfunds.com/insights/market-perspectives/equity/cyclical-nature-active-passive-investing.html 
3. Morgan Stanley: A New Take on the Active vs. Passive Investing Debate https://www.morganstanley.com/articles/active-vs-passive-investing 
4. The Motley Fool: Active vs Passive Investing Differences https://www.fool.com/investing/how-to-invest/active-vs-passive-investing/ 
5. Vanguard: What is an Expense Ratio? https://investor.vanguard.com/investor-resources-education/education/expense-ratio 
6. Bankrate: What Is An Expense Ratio And What’s A Good One? https://www.bankrate.com/investing/what-is-an-expense-ratio/ 
7. Thrivent: Active & Passive Fund Management Differences https://www.thriventfunds.com/insights/mutual-fund-focus/active-passive-fund-management-whats-the-difference.html 
8. S&P Global: The Active vs. Passive Debate https://www.spglobal.com/en/research-insights/articles/the-active-vs-passive-debate 
9. Wharton: Active vs. Passive Investing Returns Analysis https://executiveeducation.wharton.upenn.edu/thought-leadership/wharton-wealth-management-initiative/wmi-thought-leadership/active-vs-passive-investing-which-approach-offers-better-returns/ 

This information is for educational purposes only and is not intended as investment, tax, or legal advice. Past performance is not indicative of future results. Investment advisory services offered through Summit Financial, LLC, a SEC Registered Investment Advisor. 8434413.1.

Meta Description: Compare active and passive investment strategies for wealthy investors. Learn the differences between approaches and considerations for each.

Keywords: active management, passive management

Estate planning is one of those topics that many people know they should address, but often put off. When they finally get around to it, the temptation is strong to use an online service or DIY kit to save money and get it done quickly.

I understand the appeal. Online estate planning tools are convenient, seemingly affordable, and let you work at your own pace. These tools might provide adequate basic protection for some people with very straightforward situations.

As I work with families on their estate plans, I see situations almost daily where DIY approaches create problems that cost far more to fix than they would have cost to do correctly in the first place.

Let me explain when DIY estate planning might work, when it definitely doesn’t, and how to determine which approach is right for your family’s situation.

The Appeal of DIY Estate Planning

I won’t pretend that DIY estate planning doesn’t have advantages. Let me acknowledge what makes these services attractive before explaining their limitations.

Cost Considerations

DIY software can cost anywhere from $40 for a simple will to $700 for an estate plan for a married couple, including a trust. Most estate planning packages range between $100 and $400.

Compare that to attorney fees, which generally run $400-800 for joint will packages, while joint trust packages range from $1,500-4,000.

That cost difference can be significant for young families just starting out or people in straightforward situations.

Convenience and Control

Online tools allow you to work at your own pace and in your own time, and you might be more motivated to get started if you can do this independently.

There’s something to be said for being able to create basic documents from your kitchen table rather than scheduling appointments and coordinating with professionals.

Better Than Nothing

Here’s an important point: a DIY will or trust is generally better than no estate plan. 60% of people haven’t created a will or made any estate planning documents, leaving their assets unprotected.

If the choice is between a basic DIY plan and no plan, the DIY option wins every time.

When DIY Estate Planning Can Work

Let me clarify situations where online estate planning tools might provide adequate protection.

Very Simple Situations

If you’re young, single, have minimal assets, and want everything to go to one or two people, a basic online will might be sufficient for now.

“Very simple” typically means:

• Under $100,000 in total assets
• No real estate ownership
• No minor children
• No complicated family dynamics
• Clear, straightforward wishes about asset distribution

Temporary Solutions

Sometimes, DIY planning serves as a temporary solution while you organize your finances or save up for professional help.

Having basic documents in place while you prepare for more comprehensive planning can provide some protection during the transition period.

Supplemental Documents

Certain estate planning documents, like basic advance directives or simple powers of attorney, can sometimes be adequately handled through quality online services if your situation is straightforward.

Where DIY Estate Planning Falls Short

Let’s talk about where online tools and DIY approaches often create problems that cost families significant money and stress later.

State Law Complexity

Estate planning laws vary significantly from state to state. What works in California might not work in Michigan. Online tools often use generic language that might not comply with specific state requirements or take advantage of state-specific benefits.

Each state has different:

• Witness and notarization requirements
• Community property vs. common law rules
• Homestead exemptions
• Trust administration procedures
• Tax implications

Tax Planning Limitations

Tax planning is where DIY approaches often create the most expensive mistakes. Online tools typically can’t address:

Generation-skipping transfer tax strategies

Charitable remainder trusts

Grantor trust structures

State-specific tax advantages

Business succession tax planning

For families with estates over $13 million (the 2025 federal exemption), inadequate tax planning can result in hundreds of thousands or even millions in unnecessary taxes.

Family Dynamics

Every family has unique dynamics that generic templates can’t address. I’ve seen DIY plans create conflicts because they didn’t account for:

Blended family situations with multiple marriages

Children with different financial needs or capabilities

Family members with addiction or spending problems

Disability considerations

Geographic dispersion of family members

Asset Titling and Funding Issues

Creating trust documents is only half the job. The other half is properly transferring assets into the trust, which is called “funding.” Many DIY plans fail completely here.

I regularly see families who created online trusts but never transferred their houses, investment accounts, or business interests into them. When they pass away, the family discovers that the trust is essentially worthless because it doesn’t actually own anything.

Business Ownership Complications

DIY estate planning is almost always inadequate if you own a business, partnership interest, or professional practice. These situations require specialized planning for:

Business valuation and transfer strategies

Buy-sell agreements

Succession planning

Tax optimization

Liquidity planning for estate taxes

Real-World Consequences of DIY Mistakes

Let me share some examples of what happens when DIY estate planning goes wrong.

The Unfunded Trust Problem

A successful small business owner used an online service to create a revocable trust, proud of saving thousands in attorney fees. When he passed away, his family discovered that while he had a beautifully written trust document, he had never transferred his business, investment accounts, or real estate into the trust.

Everything went through probate anyway. Probate fees can be pretty substantial, with attorney’s fees and court costs potentially taking up to 5% of an estate’s value, and the average uncontested probate may take longer than a year.

The family spent more on probate costs and delays than professional estate planning would have cost initially.

Tax Planning Oversights

Another family used online tools to create what they thought was tax-efficient planning. They didn’t realize their state had different rules for trust taxation than the online tool assumed.

The result was unnecessary state income taxes of nearly $15,000 per year. Over time, this mistake cost far more than comprehensive professional planning would have cost.

Guardianship Issues

A couple with young children used an online will that included guardianship nominations. However, the document didn’t include the necessary language for the guardian to access funds for the children’s care, and it didn’t address what would happen if their first choice wasn’t available.

When tragedy struck, the family had to go through expensive court proceedings to sort out the children’s financial care and modify the guardianship arrangements.

When You Definitely Need an Estate Planning Advisor

Based on my experience working with families, here are situations where DIY estate planning typically isn’t sufficient and you should consider working with an estate planning advisor.

Significant Assets

If your estate is worth more than $500,000, professional guidance from an estate planning advisor usually pays for itself through better tax planning, asset protection strategies, and avoiding costly mistakes.

Real Estate Ownership

Owning real estate, especially in multiple states, creates complications that online tools often can’t handle properly. An estate planning advisor can help with:

• Avoiding probate in multiple states
• State-specific property tax advantages
• Transfer tax optimization
• Asset protection strategies

Minor Children

Parents of minor children need more than basic guardianship nominations. Comprehensive estate planning addresses:

• Financial management for children’s inheritance
• Educational funding strategies
• Special needs considerations
• Age-appropriate distribution schedules
• Backup plans if primary guardians aren’t available

Blended Families

Second marriages, stepchildren, and blended families require careful planning to balance competing interests. Generic templates can’t address:

• Providing for a current spouse while preserving inheritance for children from previous marriages
• Coordinating with existing support obligations
• Managing family dynamics and potential conflicts

Business Ownership

Any business ownership, from a small LLC to a major corporation, requires specialized planning that DIY tools can’t provide. An estate planning advisor experienced with business succession can coordinate these complex strategies.

Complex Family Situations

Families dealing with addiction, mental health issues, financial irresponsibility, or special needs require individualized planning that considers each family member’s specific circumstances.

Charitable Goals

If you want to include charitable giving in your estate plan, professional guidance can help structure gifts for maximum tax efficiency and family benefit.

The Hidden Costs of DIY Mistakes

When people choose DIY estate planning to save money, they often don’t consider the potential long-term costs of getting it wrong.

Probate Costs

Improperly executed documents or unfunded trusts often result in probate anyway. Attorney’s fees and court costs may take up to 5% of an estate’s value.

Family Conflicts

Ambiguous language or incomplete planning often leads to family disputes. Legal fees to resolve these conflicts can easily exceed the cost of proper initial planning.

Tax Penalties

Missing tax planning opportunities or creating unintended consequences can cost thousands of unnecessary taxes annually.

Lost Opportunities

Poor planning might miss opportunities for asset protection, tax optimization, or charitable giving that could have provided significant benefits.

What Professional Estate Planning Actually Provides

You get more than document preparation when you work with qualified estate planning advisors.

Comprehensive Analysis

Professional estate planning advisors analyze your financial situation, family dynamics, and goals to create integrated strategies.

State-Specific Expertise

Qualified attorneys understand state-specific laws and can structure plans to take advantage of local benefits while avoiding state-specific pitfalls.

Tax Optimization

Experienced estate planning advisors can implement strategies to minimize estate, gift, income, and generation-skipping transfer taxes.

Implementation Support

Professional services include helping you adequately fund trusts, retitle assets, and coordinate with other advisors.

Ongoing Relationship

Estate plans need regular updates as laws change and life circumstances evolve. Professional relationships provide ongoing support and updates.

Family Communication

Experienced estate planning advisors can help facilitate family discussions about estate planning goals and minimize potential conflicts.

Coordination with Investment Strategies

One of the key advantages of working with comprehensive estate planning advisors is their ability to coordinate estate planning with your investment strategies. This coordination can optimize tax efficiency, asset protection, and wealth transfer goals in ways that DIY tools cannot match.

How to Choose the Right Approach

Here are questions to help determine whether DIY planning might work for your situation or whether an estate planning advisor is worth the investment.

About Your Situation

Asset Complexity: Do you own real estate, business interests, or have assets over $500,000?

Family Situation: Do you have minor children, a blended family, or complex family dynamics?

Geographic Considerations: Do you own property in multiple states or plan to move?

Tax Concerns: Could estate or gift taxes affect your situation?

About Your Comfort Level

Legal Complexity: Are you comfortable researching and understanding state-specific legal requirements?

Implementation: Can you handle transferring assets, updating beneficiaries, and coordinating with financial institutions?

Updates: Will you remember to update documents when laws change or life circumstances evolve?

About Your Priorities

Cost vs. Risk: Are you comfortable with the risk of costly mistakes to save on upfront costs?

Time Investment: Do you have time to research, implement, and maintain your estate plan properly?

Peace of Mind: Is the confidence that comes with professional oversight important to you?

The Middle Ground Approach

For some families, a hybrid approach makes sense.

Start with Professional Planning

To establish proper structure and documentation, begin with comprehensive professional planning with an estate planning advisor. This ensures your foundation is solid and legally sound.

Ongoing Maintenance

Once you have proper documents, routine updates might be handled through online tools or simple attorney services.

Regular Professional Reviews

Schedule periodic reviews with estate planning advisors to ensure your plan stays current with law changes and life circumstances.

What to Look for in Estate Planning Advisors

If you decide to work with professional estate planning advisors, consider these factors.

Qualifications and Experience

Look for attorneys who specialize in estate planning and regularly handle situations similar to yours. Consider credentials like:

• Board certification in estate planning
• Advanced degrees in taxation (LL.M.)
• Experience with similar family situations

Comprehensive Approach

Choose estate planning advisors who coordinate estate planning with overall financial planning, tax strategies, and family goals.

Communication Style

Find advisors who clearly explain complex concepts and involve you in planning. Confidence, not arrogance, should guide their approach.

Fee Transparency

Understand exactly what services you’re receiving and how fees are structured. Some attorneys charge flat fees for specific services, while others use hourly billing.

Team Approach

Many complex situations benefit from teams that include estate planning attorneys, tax professionals, financial advisors, and insurance specialists working together.

Implementation Is Key

Proper implementation is critical whether you choose DIY or professional estate planning with an advisor.

Asset Titling

Ensure assets are properly titled to work with your estate plan. This might mean transferring property into trust names or updating beneficiary designations.

Regular Updates

Estate plans need updates when:

• Laws change
• Family circumstances change
• Financial situations evolve
• You move to a different state

Family Communication

Ensure family members understand your wishes and know where to find essential documents and information.

Document Storage

Keep original documents safe but accessible. Provide copies to appropriate family members and advisors.

The Bottom Line

DIY estate planning can work for people with simple situations who understand the risks and limitations. But for most families, especially those with significant assets, complex situations, or important family considerations, working with qualified estate planning advisors provides value that far exceeds the cost.

Sixteen percent of people with a trust, will, or estate plan created it without consulting a professional. While this might work for some, it often leaves families with inadequate protection when they need it most.

What you see is what you get. If you choose DIY planning, ensure you understand exactly what you’re getting and, more importantly, what you might be missing.

For many families, we’re in the don’t screw it up phase of life. Estate planning mistakes can cost your family thousands of unnecessary taxes, probate costs, and conflicts. The peace of mind from knowing your plan is comprehensive, properly implemented, and legally sound is worth far more than the cost savings of DIY alternatives.

Remember, estate planning isn’t just about having documents. It’s about creating a comprehensive strategy that protects your family and achieves your goals. Professional estate planning advisors help ensure your plan works when your family needs it most.

Sources

1. Vanilla – Estate Planning Statistics and Facts You Need to Know https://www.justvanilla.com/blog/estate-planning-statistics-and-facts-you-need-to-know 
2. Grow Law Firm – Top Estate Planning Law Statistics and Trends for 2025 https://growlawfirm.com/blog/estate-planning-law-statistics 
3. Sprouse Shrader Smith – Estate Planning Attorneys vs. DIY Estate Planning Services https://www.sprouselaw.com/estate-planning-attorneys-vs-diy-estate-planning-services/
4. FindLaw – Deciding Between an Attorney or Online Forms for Estate Planning https://www.findlaw.com/legalblogs/law-and-life/deciding-between-an-attorney-or-online-forms-for-estate-planning/
5. Thomas McKenzie Law – DIY vs Estate Planning Attorney in California: Pros and Cons https://www.thomasmckenzielaw.com/diy-vs-hiring-an-estate-planning-attorney-in-california-pros-and-cons/
6. LegalZoom – How Much Does Estate Planning Cost? 2025 Guide https://www.legalzoom.com/articles/estate-planning-cost
7. Lawyers.com – How Much Does Estate Planning Cost With and Without an Attorney? https://legal-info.lawyers.com/trusts-estates/cost-of-creating-an-estate-plan-and-administering-an-estate/how-much-does-an-estate-planning-attorney-cost.html
8. Fritch Law – The Cost Conundrum: Will vs. Trust https://fritchlaw.com/2025/05/22/average-cost-of-a-trust-and-will/
9. Margerie Law – How Much Does Estate Planning Really Cost? https://www.margerielaw.com/how-much-does-estate-planning-cost/
10. Fidelity – Estate planning: do you need one? https://www.fidelity.com/viewpoints/personal-finance/do-you-need-an-estate-plan
11. American Bar Association – Estate Planning Information & FAQs https://www.americanbar.org/groups/real_property_trust_estate/resources/estate-planning/ 

This information is for educational purposes only and is not intended as investment, tax, or legal advice. Past performance is not indicative of future results. Investment advisory services offered through Summit Financial, LLC, a SEC Registered Investment Advisor. 8434399.1.

Meta Description: Learn when you need professional help beyond basic estate planning documents. Discover how advisors coordinate estate and investment strategies.

Keywords: estate planning advisor, estate planning

Most people assume all financial advisors are basically the same. They’re not.

Some have spent years earning professional certifications and maintaining rigorous standards. Others obtained a basic license and retired their business.

The difference can cost you thousands of dollars over time or, worse, derail your retirement plans entirely.

Let me explain what separates certified advisors from the rest and, more importantly, when it matters for your money.

The Certification Landscape

First, let’s clear up some confusion. The term “certified financial advisor” isn’t actually an official designation. What people usually mean when they say this is a financial advisor who holds professional certifications.

The most common and respected certifications include:

• CFP (Certified Financial Planner): The gold standard for comprehensive financial planning
• CFA (Chartered Financial Analyst): Focuses on investment analysis and portfolio management
• ChFC (Chartered Financial Consultant): Similar to CFP, with emphasis on insurance and estate planning
• PFS (Personal Financial Specialist): For CPAs who specialize in financial planning

Meanwhile, “regular advisors” might hold basic licenses like Series 7 or Series 66, allowing them to sell securities and provide investment advice but not require the same depth of education and ongoing requirements.

The Real Difference: Education and Standards

Here’s what separates certified advisors from those with basic licensing.

Education Requirements

Getting a CFP certification requires completing a comprehensive education program covering financial planning, insurance, investments, taxes, retirement planning, and estate planning. It’s not a weekend course.

The CFP Board requires candidates to complete coursework equivalent to a bachelor’s degree program in financial planning, plus pass a rigorous 6-hour exam.

Compare that to basic licensing, which typically requires studying for a few weeks and passing a relatively straightforward exam.

Experience Standards

Most serious certifications require significant real-world experience. CFP candidates need at least 6,000 hours of professional financial planning experience or 4,000 hours of apprenticeship experience.

This experience requirement matters. Managing money in textbooks differs from managing it when markets are volatile and clients are worried about their retirement.

Ongoing Education

Certified advisors must complete continuing education requirements to maintain their credentials. CFP holders need 30 hours of continuing education every two years.

This ongoing education requirement helps ensure advisors stay current with changing tax laws, investment strategies, and financial planning techniques.

Fiduciary vs. Suitability Standards

This is where things get really important for you as a client.

The Fiduciary Standard

Many certified financial planners operate under a fiduciary standard, which means they’re legally required to put your interests first. Period.

When someone is managing your family’s financial future, this legal obligation matters. It means they can’t recommend investments that pay them higher commissions if those investments aren’t the best choice for your situation.

The Suitability Standard

Many “regular” advisors operate under a suitability standard. This means their recommendations need to be “suitable” for your situation, not necessarily the best available option.

The difference? Under suitability standards, an advisor could recommend a mutual fund that pays them a 5% commission instead of a similar fund that pays them 1%, as long as both funds are “suitable” for your needs.

Scope of Services

Comprehensive vs. Product-Focused

Certified financial planners typically provide comprehensive financial planning services. They look at your complete financial picture: cash flow, taxes, insurance, investments, retirement, and estate planning.

Many regular advisors focus primarily on selling investment products or insurance policies. There’s nothing inherently wrong with this, but it’s a different approach.

Think of it this way: a comprehensive financial planner is like a family doctor who considers your overall health, while a product-focused advisor is more like a specialist who focuses on one area.

Planning vs. Sales

In my experience, certified advisors are more likely to start with a financial plan and then recommend products that fit the plan.

Product-focused advisors might start with products they want to sell and build a plan around those products.

The enemy of good is perfect, but having a comprehensive plan before choosing products generally leads to better outcomes.

Fee Structures Matter

Fee-Only vs. Commission-Based

Many certified financial planners work on a fee-only basis. You pay them directly for their advice, and they don’t receive commissions from product sales.

This structure aligns their interests with yours. They make money when you pay their fee, not when they sell you something.

Commission-based advisors earn money when they sell you products. This doesn’t automatically make them bad advisors, but creates potential conflicts of interest.

Fee Transparency

Certified advisors, particularly those operating under fiduciary standards, are generally required to provide clear fee disclosure. You should know precisely what you’re paying for and for what services.

Some commission-based advisors advertise “free” advice, but you pay through product fees and commissions. These costs are often less transparent but can be significant over time.

Accountability and Oversight

Professional Standards Boards

Certified advisors are subject to oversight by professional standards boards. The CFP Board, for example, can investigate complaints and revoke certifications for misconduct.

This professional oversight provides an additional layer of protection for clients.

Regulatory Oversight

All legitimate financial advisors, whether certified or not, are subject to regulatory oversight. However, the level of oversight can vary significantly.

Registered Investment Advisors (RIAs) are subject to SEC or state oversight and regular audits. Broker-dealers operate under different regulations and have different requirements.

When Certification Matters Most

Complex Financial Situations

Working with a certified advisor often makes sense if you’re a business owner, high-income earner, or have complex financial needs. They’re more likely to have the training and experience to handle sophisticated planning strategies.

Comprehensive Planning Needs

A certified comprehensive planner is typically the better choice if you want someone to coordinate all aspects of your financial life rather than just manage investments or sell insurance.

Peace of Mind

Some people simply feel more comfortable working with advisors who have invested the time and effort to earn professional certifications. While the credentials don’t guarantee good advice, they do indicate a certain level of commitment to the profession.

When Basic Licensing Might Be Sufficient

Simple Investment Management

If you have straightforward needs and want someone to manage a portfolio of index funds, you might not need a highly certified advisor.

Product-Specific Needs

If you need help with a specific product, like life insurance, working with a knowledgeable agent specializing in that area might be more appropriate than a comprehensive planner.

Cost Considerations

Certified advisors often charge higher fees than those with basic licensing. If cost is your primary concern and your needs are simple, this might factor into your decision.

Red Flags to Watch For

Fake Certifications

Some advisors use impressive-sounding titles that aren’t actually recognized certifications. “Certified Senior Advisor” or “Certified Retirement Specialist” might sound official, but often require minimal training.

Always verify certifications through the issuing organization’s website.

Outdated Certifications

Ask when the advisor earned their certification and whether they’re current with continuing education requirements. An advisor who earned a CFP 20 years ago but hasn’t kept up with requirements is no longer a CFP.

Overemphasis on Credentials

Good advisors let their work speak for itself. Avoid advisors who spend more time discussing their credentials than understanding your situation.

Questions to Ask Any Advisor

Regardless of certifications, here are questions you should ask any potential advisor:

About Their Credentials:

• What certifications do you hold?
• When did you earn them, and are you current with continuing education?
• Are you a fiduciary?

About Their Business:

• How do you get paid?
• What services do you provide?
• How often will we meet?
• Who else will I work with at your firm?

About Their Approach:

• Can you explain your investment philosophy?
• How do you develop financial plans?
• What’s your process for monitoring and adjusting strategies?

The Bottom Line

The difference between certified and regular financial advisors often comes down to education, standards, and the scope of services.

Certified advisors typically have more comprehensive training, higher professional standards, and broader planning capabilities. However, they also generally cost more.

The right choice depends on your specific needs, the complexity of your situation, and your budget.

What matters most is finding an advisor who understands your goals, communicates clearly, operates under standards you’re comfortable with, and has the knowledge and experience to help your family succeed.

Things happen for you, not to you. But having the right advisor can help ensure those things work in your favor.

We don’t run our business on autopilot, and you shouldn’t accept autopilot service from any advisor, regardless of their certifications.

Sources

1. CFP Board Education Requirements https://www.cfp.net/certification-process/education-requirement 
2. CFP Board Experience Requirements https://www.cfp.net/certification-process/experience-requirement 
3. CFP Board Certification Process https://www.cfp.net/certification-process 
4. CFP Continuing Education Requirements https://www.kaplanfinancial.com/cfp 
5. SmartAsset: Fiduciary Duty vs. Suitability Standards https://smartasset.com/financial-advisor/fiduciary-vs-suitability 
6. Sandy Spring Bank: Fiduciary Standard vs. Suitability Standard https://www.sandyspringbank.com/wealth/news/financial-planning/fiduciary-standard-vs-suitability-standard
7. Beacon Pointe: Does Your Advisor Use the Right Standard? https://beaconpointe.com/does-your-advisor-use-the-right-standard-fiduciary-vs-suitability
8. FINRA Professional Designations Database https://www.finra.org/investors/professional-designations 

This information is for educational purposes only and is not intended as investment, tax, or legal advice. Past performance is not indicative of future results. Investment advisory services offered through Summit Financial, LLC, a SEC Registered Investment Advisor. 8434387.1.

Meta Description: Discover why working with a certified financial advisor makes a difference. Learn the credentials that matter and how to verify your advisor’s qualifications.

Keywords: certified financial advisor, financial advisor

After 40 years in this business, I’ve learned that people often ask me the same question:

“Dan, how do I know if my financial advisor is actually doing a good job?”

It’s a fair question, and honestly, it’s one more people should be asking. According to a 2024 YCharts survey, 75% of clients either considered switching or did switch advisors in 2023, up from 48% of respondents between 2020-2022. Understanding these financial advisor red flags can help you evaluate your own situation.

Let me share some insights that might help.

When Your Advisor Can’t Explain What They’re Doing

One of the most important financial advisor red flags is unclear communication about investment strategies.

According to FMG’s 2024 Advisor-Client Communications Survey, only 64% of the content in a typical conversation with their advisor resonates with clients, down from 70% in 2023. That means more than one-third of what advisors are saying isn’t connecting with people.

If your financial advisor can’t explain their strategy in terms you understand, that’s worth considering carefully. Effective advisors should be able to walk you through exactly what they’re doing and why it makes sense for your situation.

Your money is too important for guesswork. Any advisor worth their fee should be able to provide clear explanations of their approach.

Red flag #1: Advisors who use confusing jargon instead of clear explanations, or seem defensive when you ask questions about your investments.

The Mystery of Missing Performance Reports

This is another significant concern. Many investors don’t receive clear performance reporting that helps them understand their progress.

A study by CNBC found that nearly three-quarters of investors say their financial advisor has let them down, with investment track record being one of the two biggest reasons.

Effective advisors should provide regular reports that include:

• Performance compared to appropriate benchmarks
• Explanation of what changes were made and why
• Progress updates on your long-term goals
• Complete fee disclosure

Some investors find themselves with beautifully designed statements that lack meaningful performance comparisons. This can make it difficult to evaluate whether the advisory relationship is working effectively.

Red flag #2: Unclear performance reporting, or reports that don’t show how you’re doing compared to relevant benchmarks.

The Endless Product Parade

Another bad financial advisor characteristic is constantly pitching new products instead of focusing on your long-term plan.

If every meeting feels like a sales presentation for something new, you might be dealing with someone focused more on product sales than comprehensive planning.

The enemy of good is perfect. A solid plan that’s consistently executed often works better than constantly changing strategies.

Red flag #3: Advisors who constantly pitch new products instead of maintaining focus on your long-term strategy.

When You Can’t Reach Them

This should be obvious, but it’s worth mentioning: your financial advisor should be reasonably available when you need guidance.

According to J.D. Power’s 2023 Financial Advisor Satisfaction Study, nearly one-third (28%) of financial advisors say they do not have enough time to spend with clients. If your advisor is in that group, you’re not getting the service you deserve.

YCharts research shows that clients who receive infrequent communication from their advisor displayed decidedly less confidence in their financial plan. Of respondents who are infrequently contacted (every 4-6 months or less), just 22% are very comfortable with their financial plan, compared to a 71% rate by clients who receive frequent contact (monthly or more).

I learned early in my career that communication is part of the job, not an interruption to it. When people are concerned about their money, they deserve timely responses.

More communication is generally better than less, especially when people are worried about market conditions or their financial situation.

Red flag #4: Poor communication, slow response times, or only hearing from them when they want to sell you something.

The Fee Shell Game

Fee transparency is crucial in any advisory relationship. Some advisors advertise “no fees” but use high-commission products that essentially hide the costs.

According to a recent financial advisor fee study from Bob Veres’ Inside Information, the true all-in cost for financial advisors averages about 1.65%, not “just” 1%. A 2024 study by YouGov revealed that cost of services comes in second priority with almost 50% of Americans concerned about fees when choosing an advisor.

“Fee-free” advice that comes with expensive products isn’t actually free – you’re just paying in a way that’s harder to see.

According to the 2024 State of Financial Planning and Fees study from Envestnet, the average financial advisor fees last year included a fixed-percentage fee for a human advisor of 1.05%. Transparent fee structures help you understand exactly what you’re paying and what you’re receiving for those fees.

Red flag #5: Fee structures that don’t make sense for the services provided, or “fee-free” advice that comes with expensive products.

The Fiduciary Question

This is an important consideration when evaluating advisors. A fiduciary is legally required to put your interests first, while other advisors only need to make “suitable” recommendations.

According to research from Human Investing, only 4.92% of financial professionals operate as fee-only fiduciaries. This percentage has seen growth from an estimated 2% in 2018, reflecting progress but also underscoring the rarity of this practice in an industry dominated by commission-based models.

Even among Investment Advisor Representatives (IARs), who are often seen as closer to the fiduciary standard, 47% still receive commissions, leaving only 53% as truly fee-only fiduciaries.

When someone is helping manage your family’s financial future, understanding their legal obligations can be valuable.

Many investors don’t realize there are different standards that advisors operate under, so this is worth asking about directly.

Red flag #6: Advisors who won’t clearly state they’re fiduciaries or seem unclear about their obligations to clients.

The Cookie-Cutter Problem

Your financial situation is unique, and your investment approach should reflect that. Generic, one-size-fits-all approaches exist because they’re easier and less expensive for advisors to implement.

However, they may not address your specific situation and goals effectively.

Red flag #7: Generic investment approaches that don’t seem tailored to your specific situation and goals.

The Promise Trap

Be cautious of anyone who guarantees specific returns on investments. Claims like “we can get you 12% annually” or “our strategy never loses money” should raise immediate concerns.

Even experienced professionals with strong track records cannot guarantee future performance, as market conditions are inherently unpredictable.

Things happen for you, not to you – but nobody can predict exactly what those things will be or when they’ll happen.

Red flag #8: Guarantees about future performance or promises that sound too good to be true.

What Good Financial Advisors Actually Do

Let me share what you might expect from an effective advisory relationship.

During market volatility, good advisors help you understand what’s happening historically, why staying disciplined often pays off long-term, and how your specific situation affects the appropriate response.

This kind of guidance can be valuable when emotions are telling you to make reactive decisions.

Effective advisors typically provide:

• Clear Communication: Explanations in terms you can understand
• Transparent Fees: Clear information about what you’re paying and why
• Regular Reporting: Honest updates on your performance and progress
• Reasonable Availability: Responsiveness when you have questions
• Accountability: Responsibility for results and willingness to make changes when needed
• Clear Standards: Understanding of their legal obligations to clients

A Personal Perspective on Making Changes

Early in my career, I had to change contractors who was working on my house. The person was reliable and likable, but the work wasn’t meeting expectations.

It was uncomfortable – but my family’s home was too important to accept subpar results just because the relationship was pleasant.

Your family’s financial future deserves the same consideration.

If you recognize these financial advisor red flags, it doesn’t necessarily mean your advisor is a bad person. But it might mean they’re not the right fit for your needs.

What to Consider Next

If any of these warning signs seem familiar, you might consider:

• Asking more questions. Don’t accept vague answers about your investments or performance.
• Getting a second opinion. Having another advisor review your situation independently.
• Documenting everything. Keeping copies of all your statements and records.
• Evaluating your options. Your financial security may be more important than avoiding an uncomfortable conversation.

The Bottom Line

Research from Financial Advisor magazine shows that 72% of advisors said their client fired a previous advisor for failing to communicate in a timely way. That tells you something about what really matters to people.

Changing financial advisors isn’t always easy, but staying with an advisor who isn’t serving your needs effectively can be costly over time.

Your family’s financial future deserves someone who’s genuinely competent, truly accountable, and focused on helping you succeed.

We don’t run our business on autopilot, and you shouldn’t have to accept autopilot service from your advisor either.

Sources

1. YCharts Advisor-Client Communication Survey 2024 https://get.ycharts.com/resources/blog/why-frequent-advisor-communication-matters-insights-from-ycharts-latest-survey/ 
2. J.D. Power 2024 U.S. Financial Advisor Satisfaction Study https://www.jdpower.com/business/press-releases/2024-us-financial-advisor-satisfaction-study 
3. J.D. Power 2023 U.S. Financial Advisor Satisfaction Study https://www.jdpower.com/business/press-releases/2023-us-financial-advisor-satisfaction-study 
4. FMG Suite 2024 Advisor-Client Communications Survey https://fmgsuite.com/resources/webinar/breaking-down-the-2024-advisor-client-communications-survey/ 
5. Financial Advisor Magazine Industry Survey https://emoneyadvisor.com/blog/4-reasons-why-clients-leave-financial-advisors-plus-4-client-retention-strategies/ 
6. Bob Veres’ Inside Information Financial Advisor Fee Study (via Kitces Research) https://www.kitces.com/blog/independent-financial-advisor-fees-comparison-typical-aum-wealth-management-fee/ 
7. YouGov 2024 Consumer Survey (via U.S. News) https://money.usnews.com/financial-advisors/articles/what-to-know-about-financial-advisor-fees-and-costs
8. Envestnet 2024 State of Financial Planning and Fees Study (via NerdWallet) https://www.nerdwallet.com/article/investing/how-much-does-a-financial-advisor-cost 
9. Human Investing Research on Fiduciary Standards (2024) https://www.humaninvesting.com/450-journal/only-5-percent-of-advisors-are-true-fiduciaries 
10. CNBC Financial Advisor Performance Study https://www.cnbc.com/2017/12/08/financial-advisors-fail-on-investment-performance-client-trust.html 
11. Financial Planning Magazine – Advisor Communication Research https://www.financial-planning.com/list/financial-advisors-losing-clients-over-poor-communication-skills 

This information is for educational purposes only and is not intended as investment, tax, or legal advice. Past performance is not indicative of future results. Investment advisory services offered through Summit Financial, LLC, a SEC Registered Investment Advisor. 8368975.1

Working with business owners over the years, I’ve noticed a familiar pattern: many successful entrepreneurs are experts at running their businesses but often overlook the bigger financial picture.

You might have your daily operations running smoothly, your cash flow managed, and your taxes handled by a good CPA. Those fundamentals are essential, but they’re just the starting point for comprehensive small business financial planning.

The most successful business owners I work with understand that their business isn’t just a source of income, it’s a wealth-building tool that should be coordinated with their personal financial goals. They’ve moved beyond basic business banking to create integrated strategies that serve both their business needs and their family’s long-term financial security.

Let me share what that comprehensive approach looks like and how it can make a meaningful difference in building business stability and personal wealth.

The Integration Challenge

One of the biggest opportunities with business owners is treating their business and personal finances as separate entities instead of coordinating them as part of an integrated strategy.

Your business financial decisions directly impact your personal financial situation, and vice versa. Effective small business financial planning recognizes and uses these connections to your advantage.

Cash Flow vs. Wealth Building

Managing monthly cash flow is essential for business survival, but it’s different from building long-term wealth. Many business owners get so focused on monthly operations that they miss opportunities for strategic wealth accumulation.

For example, how you pay yourself from your business (salary vs. distributions vs. retained earnings) has significant implications for your personal tax situation, retirement savings capacity, and overall financial planning.

Tax Strategy Coordination

Business and personal tax planning should work together, not against each other. The timing of income recognition, equipment purchases, retirement contributions, and other financial decisions can be coordinated to optimize your overall tax situation.

Some business owners make decisions that save business taxes but create personal tax problems, or vice versa. A coordinated approach often produces better overall results.

When Small Business Financial Planning Gets Complex

Based on experience working with various business owners, here are situations where business financial planning becomes more sophisticated:

Profitable Growth Management

Success creates new challenges. As your business grows, you face decisions about reinvestment, cash management, and scaling operations while maintaining profitability.

Growing businesses often experience cash flow timing issues even when they’re profitable. Revenue might increase, but you’re investing in inventory, equipment, staff, and facilities. Managing this growth cycle requires careful planning.

Business Structure Optimization

Many businesses start as sole proprietorships or simple LLCs, but as they grow, different entity structures might provide better tax advantages or liability protection.

The choice between S-Corp elections, traditional corporations, or other structures depends on your income level, growth plans, and personal financial goals. These decisions have long-term implications for both business operations and personal wealth building.

Employee Benefits and Retirement Plans

As you add employees, you face health insurance, retirement benefits, and other compensation decisions. These choices affect your business expenses, benefits, and ability to attract quality staff.

Some business owners don’t realize they can structure employee benefits in ways that provide maximum advantage to themselves while still offering meaningful benefits to their team.

Key Components of Comprehensive Business Financial Planning

When we work with business owners on small business financial planning, here’s what that typically includes:

Cash Flow Management and Forecasting

This goes beyond basic budgeting to include seasonal planning, growth funding, and maintaining appropriate cash reserves.

Many businesses have seasonal fluctuations or cyclical patterns that require planning. Systems predicting and managing these patterns can prevent cash flow crises and reduce stress.

Business and Personal Goal Coordination

Your business should serve your personal financial goals, not work against them. This means aligning business growth plans with your retirement timeline, family financial needs, and lifestyle objectives.

For example, if you want to retire in 15 years, your business strategy should include building transferable value and planning for succession or sale.

Risk Management

Business insurance, liability protection, and financial risk management become more critical as your business and personal wealth grow.

This includes evaluating business insurance coverage, personal liability protection, and coordination between business and personal insurance policies to avoid gaps or unnecessary duplication.

Exit Planning and Succession

Even if retirement is decades away, thinking about how you’ll eventually transition out of the business affects current financial decisions.

Building a business that can operate without you, creating transferable value, and planning for succession (whether to family, employees, or third parties) takes time and should influence current business structure decisions.

The Owner’s Compensation Strategy

One area where I see significant opportunities is how business owners pay themselves. This decision significantly affects taxes, retirement savings, and personal financial planning.

Salary vs. Distributions

The mix of salary and distributions affects your payroll taxes, Social Security benefits, and retirement plan contribution capacity. The optimal approach depends on your business structure, income level, and personal financial goals.

Timing of Distributions

Taking money out of the business can affect your personal tax situation. Strategic timing of distributions can help manage tax brackets and coordinate with other income sources.

Retirement Plan Maximization

Business owners often have access to more powerful retirement savings options than employees, including SEP-IRAs, solo 401(k)s, and defined benefit plans. The choice depends on your income, number of employees, and retirement timeline.

Some business owners can contribute significantly more to retirement accounts than they realize, potentially saving substantial amounts in current taxes while building retirement security.

Common Business Financial Planning Mistakes

Based on working with numerous business owners, here are patterns I see that can be costly:

Keeping Everything in the Business

Some owners accumulate large cash balances in business accounts instead of taking strategic distributions and investing for personal wealth building. While maintaining working capital is important, excessive business cash doesn’t typically provide optimal investment returns.

Ignoring Personal Financial Goals

Business owners sometimes get so focused on business growth that they neglect personal financial planning. Your business should be a vehicle for achieving personal financial security, not an end in itself.

Mixing Business and Personal Expenses

While some mixing is unavoidable, maintaining clear boundaries helps with tax compliance and makes business financial analysis more accurate. It also helps when planning for a business sale or transfer.

Inadequate Record Keeping

Financial records are essential for tax compliance, business analysis, and eventual valuation. Many owners don’t realize that poor record keeping can significantly reduce business value when it’s time to sell.

Technology and Business Financial Planning

Modern business owners have access to financial management tools that can significantly simplify business financial planning:

Automated Accounting Systems

Cloud-based accounting platforms can automate many bookkeeping tasks and provide real-time financial reporting. This saves time and provides better information for economic decision-making.

Cash Flow Forecasting Tools

Software that connects to your bank accounts and accounting system can provide cash flow projections and help identify potential problems before they become critical.

Integration Between Business and Personal Planning

Some financial planning tools can analyze business and personal financial situations together, providing a more complete picture for decision-making.

However, technology has limitations. While these tools can organize information and perform calculations, they typically can’t provide strategic guidance for complex situations or help coordinate business decisions with personal financial planning.

Working with Professional Advisors

Most successful business owners work with a team of professional advisors, including:

CPA or Tax Professional

Someone who understands business tax law and can help coordinate business and personal tax strategies.

Attorney

For business structure, contracts, and legal compliance issues.

Financial Advisor

To help coordinate business financial decisions with personal wealth building and retirement planning.

Business Banker

A banker who understands business banking needs and can provide appropriate credit facilities and cash management services.

The key is finding advisors who understand how these different areas connect and can work together rather than in isolation.

Questions to Consider

Here are some questions that might help you evaluate your current small business financial planning approach:

About Your Strategy:

• Do you have written financial goals for both your business and personal situation?
• How do you coordinate business financial decisions with personal financial planning?
• When did you last review your business structure for tax efficiency?

About Your Operations:

• Do you have reliable cash flow forecasting?
• Are you taking advantage of available retirement savings opportunities?
• How do you determine the optimal way to pay yourself from the business?

About Your Future:

• What’s your plan for eventually transitioning out of the business?
• Are you building transferable business value?
• How does your business timeline coordinate with your retirement plans?

If you’re uncertain about several of these areas, it might be worth having a conversation with advisors who specialize in business financial planning.

The Coordination Advantage

The most successful business owners I work with consider business financial planning part of their overall wealth-building strategy. They understand that business decisions and personal financial decisions are interconnected.

This coordinated approach often produces better results than managing business and personal finances separately. It can reduce overall taxes, improve cash flow timing, and help ensure business success translates into personal financial security.

Making It Work for Your Situation

Small business financial planning isn’t one-size-fits-all. A solo consultant has different needs than a growing manufacturing business. A service business has different considerations than a retail operation.

The important thing is having a systematic approach that addresses your specific situation and coordinates business and personal financial goals.

Your business is likely one of your largest assets and your primary source of income. Making sure it’s structured and managed to support your overall financial goals is worth the time and effort.

We keep our finger on the pulse of both business and personal financial planning because they’re too interconnected to manage separately.

What you see is what you get: if your business financial planning only covers basic banking and tax compliance, you’re missing opportunities to build wealth more effectively.

The key is a comprehensive approach recognizing the connections between business success and personal financial security.

Sources

1. Small Business Administration – Business Guide https://www.sba.gov/business-guide 
2. Internal Revenue Service – Small Business and Self-Employed https://www.irs.gov/businesses/small-businesses-self-employed 
3. U.S. Chamber of Commerce – Small Business Resources https://www.uschamber.com/co/start/strategy 
4. SCORE – Small Business Mentoring https://www.score.org 
5. National Association of Small Business Investment Companies https://www.nasbic.org 
6. Small Business Development Centers https://americassbdc.org 

This information is for educational purposes only and is not intended as investment, tax, or legal advice. Past performance is not indicative of future results. Investment advisory services offered through Summit Financial, LLC, a SEC Registered Investment Advisor. 8433595.1.

Keywords: small business financial planning, business financial planning

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