Advisers extend helping hand to young entrepreneurs

Financial advisers often help their young entrepreneur clients deal with the growing pains of running a small business.

“When you’re younger, you have fewer resources in terms of finances and experience,” said DeDe Jones, managing director and owner of Innovative Financial LLC. “When you’re younger, that wisdom just isn’t as developed.”

The Lakewood, Colo.-based firm’s base of young entrepreneurs includes clients between 25 and 35, whose businesses span a variety of industries.

While younger and older entrepreneurs may have similar concerns in terms of retirement plans and employee benefits, advisers report having to grapple with specific issues for their younger clients. Flubs in timing, organization and delegation of responsibilities are just a few of the complexities with which the younger entrepreneurs need advisers’ help.

The end of the tax season presents one of those problems, according to Bert Languet, a certified financial planner and vice president of Golden Pond Wealth Management Inc. of Waterville, Maine. His clients are mostly pharmacists who run their own shops.

FILING EXTENSIONS

“If we’re talking about tax time, with younger entrepreneurs, there are more extensions,” Mr. Languet said. “With older business owners, unless there’s some kind of outstanding circumstance, they’ll file on time.”

Time management isn’t the strong suit of these younger clients, who may get wrapped up in running the day-to-day aspects of their businesses and then forget to file certain paperwork on time.

“They’re good at doing their job but not necessarily good at getting details done,” Mr. Languet said. “They have to pay someone like an accountant to get it back on track.”

But taxes are just one part of the financial planning picture for younger entrepreneurs. These younger clients, particularly recent graduates, are short on everything from professional networking to cash reserves.

The transition to business ownership provides a good training ground for the young entrepreneur in search of finance sources, Ms. Jones said.

Financiers in this case are normally friends and family, who still need to see a drafted business plan before they consider committing money to the venture, she said.

“You treat them like they’re your board of directors,” Ms. Jones said.

She helps her clients collect their data and figure out where they can scale back on expenses so they can invest more money in the business. Ms. Jones said she reminds many of these younger clients that they may be able to live without a paycheck when they transition from employee to business owner, but they probably can’t live without insurance.

“Usually, when people know what’s going on and they get the implications, I see better confidence,” she said.

Just the same, when family members invest in businesses, it is still a business transaction, so parent investors will have to note in their estate plans that they are supporting a child in an entrepreneurial situation, Ms. Jones said.

Another growing pain is that life insurance may not be a top priority for the entrepreneurs, who may be shortsighted and don’t always expect to need coverage or estate-planning services.

“When you’re young, you don’t think about being dead, so it’s hard to consciously plan for that,” Mr. Languet said.

In addition, these entrepreneurs need to keep an eye on business and succession planning. A buy-sell agreement determines the amount of money that will be paid for a partner’s interest in the event of a client’s demise, retirement or disability.

Youth can obscure the importance of these plans, Mr. Languet said.

“If someone’s in their 20s or 30s, they could go waterskiing and get into an accident,” he said. “You never know.”

Some entrepreneurs are unable to make the jump from employee to employer despite the financial help they may receive.

For instance, one pharmacist in Mr. Languet’s practice couldn’t get a handle on his obligations as a business owner and became preoccupied with the regular functions of the pharmacy. The client, who was in his late 20s, ended up being bought out.

“They could be in sales and be good at it, but they have to step back and split themselves in two,” Mr. Languet said. “You’re on the front line dealing with the client, but you’re also the business owner.”

E-mail Darla Mercado at [email protected].