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Optimizing Financial Operations for Owner-Operated Firms: A Strategic Guide for RIAs

Registered Investment Advisors (RIAs) have diverse client bases, but one thing that’s common among many RIAs is that they have several clients who own and operate their own businesses. 

Often, these businesses are successful: producing enough income for the owner-operator to work with an RIA in the first place. But while these businesses might perform well, they often lag behind their venture capital (VC) and private equity (PE)-backed counterparts in several areas, perhaps most notably in their ability to develop robust financial operations. This discrepancy can lead to several operational challenges, particularly as these firms navigate critical inflection points like mergers, acquisitions, or business exits. 

From an RIA’s perspective, the better the client’s business performs, the more opportunity they have to grow wealth with their RIA. And by connecting their clients to resources that can improve financial operations, unlock untapped value, and boost profits, RIAs can establish themselves as a valuable strategic advisor to their clients. 

At G-Squared Partners, we’ve been referred to several owner-operated businesses by RIAs, and over time, we’ve helped them significantly increase the value of their businesses. It’s a relationship that’s a win-win for all parties. The RIAs client, the business owner, gets access to the support they need to grow the value of their business, while the RIA not only gets a potentially more valuable client, but also a stronger relationship. 

In this overview, we explore what this relationship looks like, highlighting the ways that our team works with owner-operated businesses to grow their value and promote stronger relationships between RIAs and their clients. 

Understanding the Financial Challenges Faced by Owner-Operated Companies

Owner-operated firms often face a unique set of financial challenges that can impede growth and operational efficiency. By helping clients understand these, as well as connecting them with resources to address them, RIAs can play an instrumental role in helping their clients increase the value of their businesses. 


1. Misunderstandings or Inaccuracies in Financial Statements

Many owner-operated firms lack the sophisticated financial reporting systems that larger, VC- or PE-backed companies might possess. Whether it’s failing to close the books on a timely basis every month or lacking the financial insights required to make important decisions, under-developed financial reporting systems can cause significant issues.

In some cases, these can lead to material errors being made in financial statements – which could cause all kinds of issues. Owner-operated businesses need not only to have accurate and timely financial data but also to understand the implications of this information.


2. Unexplained Profitability Issues and Performance Gaps

Without robust financial oversight, owner-operated firms may encounter unexplained profitability issues and performance gaps. These issues can often be traced back to inefficiencies in operations, underutilized assets, or misaligned business strategies. 

By working with an outsourced accounting firm, businesses can adopt a more comprehensive financial reporting framework that identifies potential issues proactively. An outsourced CFO can guide business owners on how to best tackle these issues and lead the creation of cash flow forecasts that help mitigate potential issues. 


3. Limited Capacity for Forward-Looking Financial Planning

Forecasting and scenario planning are critical components of strategic financial management but are often underdeveloped in owner-operated firms. Whether it’s planning for a future business exit or preparing to raise funding to fuel growth, planning for the future can be a challenge for owner-operators who are focused on running the day-to-day operations of their business. 

By introducing their clients to qualified advisors with experience in areas such as exit planning consulting and fundraising, RIAs can help clients make comprehensive long-term plans that address their financial goals. 


4. Difficulties in Preparing for Audits and Financial Due Diligence

Audits and financial due diligence are integral parts of business transactions and obtaining financing. Owner-operated firms often struggle with the rigors of these processes due to inadequate record-keeping or underdeveloped financial management systems. In many instances, the business might have never been audited before.

RIAs can assist by connecting their clients with audit preparation services that can help them prepare for an impending audit. These professionals partner with the finance team within the owner-operated company to ensure that all financial records are thorough, transparent, and compliant with applicable standards.


5. Strategic Preparation for Business Exits

Whether it's a sale, merger, or transfer of leadership, exiting a business is a complex process that requires careful financial preparation and plenty of advance planning. The importance of this cannot be overstated – in most cases, the sale of a business is by far the biggest transaction of an entrepreneur’s life. 

When clients sell their businesses, they will likely gain access to significant capital that will then be managed with their RIA. By helping clients maximize the value of their business  RIAs play a vital role in helping owner-operated firms develop exit strategies that maximize value and facilitate a smooth transition.

Transformative Financial Strategies

By supporting their clients in addressing these challenges, RIAs can significantly impact the financial health and success of the entrepreneurs that they work with. Here are several actionable improvements business owners can take to begin building additional value in their business:

•  Enhancing Financial Literacy: Learning the essentials of financial management, including the interpretation of financial statements and key performance indicators (KPIs), is fundamental to understanding the business’s financial health.•  Implementing Robust Financial Systems: Introducing more sophisticated financial reporting and planning systems can bridge the gap between current practices and best practices. This may involve bringing the business into GAAP compliance or creating financial dashboards. 
•  Regular Financial Health Check-ups: Routine financial reviews can help identify issues before they become problematic and ensure that the business remains on track to meet its financial goals.
•  Strategic Risk Management: risk management strategies help businesses prepare for unexpected financial issues and build the resilience to weather any unexpected challenges.
  Tailored Exit Planning: Developing customized exit strategies that consider all financial implications will help ensure that transitions are as profitable and efficient as possible.

Work with G-Squared Partners: Experienced Advisors to Owner-Operated Businesses

At G-Squared Partners, our professionals have witnessed first-hand how the strategic improvements outlined above can revitalize an owner-operated company and build enduring value. 

For RIAs, understanding and addressing the unique needs of owner-operated firms is more than just a service; it's an essential component of fostering long-term client relationships and business success. By connecting their clients with experienced financial advisors, RIAs not only enhance their value proposition but also ensure their clients are well-prepared for future challenges and opportunities. This strategic approach not only prepares clients for immediate financial transactions but also sets the stage for sustained success.

To learn more about how G-Squared Partners can support the financial success of your clients, contact us today.