Financial advisors can help business owners prepare for the uncertainty

Financial advisors can help business owners prepare for the uncertainty

Like most American consumers, small and mid-size business owners are increasingly concerned about economic conditions in the U.S., with two-thirds of them expecting a recession in the next six months, according to a new Nationwide Retirement Institute survey. Of those business owners who expect a recession, 72% believe it will be similar or even worse than the Great Recession of ‘07-’09.

Only 19% of small business owners and 39% of mid-size business owners rate business conditions in the U.S. economy positively. Nearly two-thirds (64%) of small business owners and half (50%) of mid-size business owners cite inflation and rising prices as the most significant challenge facing their business over the next 6 months, up 6 percentage points for small business owners and 4 points for mid-size business owners since fall 2022. This is followed by rising interest rates at 30% for mid-market-size business owners and 31% for small business owners, up 11 percentage points and down 1 point, respectively, from fall 2022.

A snapshot of the current mindset of business owners for financial professionals
“It’s understandable that business owners are bracing for a recession, however it’s important to keep in perspective that conditions are different than we experienced in 2008,” said Juan José Pérez, President of Nationwide Corporate Solutions. “Nationwide’s economics team is predicting a shorter, more moderate recession. While it’s wise to proceed with caution, financial professionals can help business owner clients understand that those who tighten the belt too much in the months ahead could hurt their ability to take advantage of opportunities that present themselves when the economic recovery begins.”

The good news is the survey shows that small and mid-size businesses have a much rosier outlook for their own operations. Today, 74% of mid-size and 55% of small business owners rate conditions for their business as good or excellent.

Business owners are even reversing some actions taken over the course of the pandemic, including hiring more and laying off less. More than 1 in 5 small businesses owners (21%) say they have hired more workers, up 8% from the fall. Only 6% of small businesses have laid off employees, a drop of 4% from the fall.  

However, business owners aren’t out of the woods. Despite a positive outlook on the future of their operations, many report they are looking for ways to reduce business expenses (63% small, 49% mid-size) as they hedge where they can to minimize risk.

Opportunities for financial advisors to support business owner clients
Financial advisors play a critical role in helping business owners navigate today’s uncertain economic environment, but today, only 35% of small business owners and 59% of mid-size business owners work with one. Of those who do not, most are hesitant because they feel they can handle their business’s finances on their own (51% small, 28% mid-size) or think that financial advisors are too costly (32% small, 38% mid-size). Some indicated they don’t know where to go to find a good advisor (12% small, 19% mid-size).

The main topics business owners want guidance on from a financial professional include:

  • Inflation – 71% small, 88% mid-size
  • Rising interest rates – 67% small, 83% mid-size
  • Market volatility – 64% small, 77% mid-size
  • Access to capital – 59% small, 76% mid-size
  • Employee benefits – 55% small, 78% mid-size
  • Supply chain disruptions – 41% small, 74% mid-size
  • Tight labor market – 36% small, 65% mid-size

“We know many advisors focus on the personal finances of their business owner clients – and that’s important,” Pérez said. “Our survey sheds light on opportunities for advisors to grow their relationship with business owners by offering solutions that go beyond their needs as individuals.”

Secure 2.0 Act opportunities
For example, many business owners indicated limited understanding of new provisions included in the Secure 2.0 Act, highlighting an educational opportunity for advisors helping clients address employee benefit needs.

Business owners had the following levels of awareness of key provisions of SECURE 2.0 Act:

  • Emergency savings opportunities for employees – 41% small, 69% mid-size
  • Improved long-time, part-time worker benefits – 40% small, 74% mid-size
  • Student loan matching opportunities – 35% small, 62% mid-size
  • Enhanced startup employer match tax credit – 34% small, 65% mid-size

“SECURE 2.0 opens the door for more business owners to offer retirement benefits for their employees,” Pérez said. “Advisors can help them understand all the different opportunities to offer benefits at a lower cost, which is a great way to ensure they attract and retain top talent.”

Serving as a “risk management partner”
In today’s environment, it’s also important to see around the corner and plan for the unexpected. Encouragingly, some business owners are actively taking steps to manage risk for their business, such as:

  • Proactively planning for potential crises – 47% small, 67% mid-size
  • Monitoring for cybersecurity breaches – 46% small, 72% mid-size
  • Performing a risk management audit – 33% small, 66% mid-size
  • Expanding their list of risk management partners – 19% small, 51% mid-size

“These are all positive steps; however, many business owners are missing opportunities to prepare for the next unexpected business disruption,” Pérez said. “I encourage advisors to position themselves with business owner clients as a risk management partner. Financial services solutions can help them manage financial risks, and risks associated with attracting or retaining top talent. An advisor can demonstrate even more value when they help their client connect the dots by bringing other risk management partners to the table to create a comprehensive strategy for protecting the business.”

Pérez offers these additional tips to help advisors engage business owner clients:

  • Set them free: Highlight how leaning on an advisor can free up time for them to focus on what they do best.  Many business owners have a do-it-yourself attitude.  
  • Address their personal finances: Some business owners put everything they have into their business at the expense of their personal financial security. Discuss their personal investment portfolio and retirement plan.
  • Explore needs of the business: Discuss financial services needs of the business – including employee benefits related to health, retirement or deferred compensation that may help them attract or retain top talent. Consider opportunities related to tax planning, insurance, etc.
  • Plan for succession: Demonstrate how you can assist with the transition when it comes time for them to retire or move on. Remind them that a succession plan involves planning for people and finances. 
  • Plan for cash flow: Discuss their plan for accessing capital. Do they have enough to grow their business – or at least access it in the event of an emergency?  
  • Prepare for brighter days: Ask about their post-recession plan. Remind them that businesses who cut back too much may jeopardize their ability to take advantage of the post-recession environment.  
  • Establish yourself as a risk management partner: Discuss various risk management scenarios related to their business and brainstorm gaps in their plan. Some scenarios may present an opportunity to bring new risk management partners to the table.   
  • Leverage your network: Develop relationships with financial services providers you can turn to for expertise, solutions or referrals to specialists. Include other risk management experts like insurance agents, attorneys, cyber security pros and specialized advisors in your network. Remember that referrals go both ways in these relationships and your clients will appreciate it when you help them connect the dots.    

Survey methodology:
Nationwide commissioned Edelman Data & Intelligence to conduct a 15-minute quantitative online survey among a national sample of 400 U.S. small business owners and 400 mid-size- businesss owners between March 30 and April 28, 2023. As a member in good standing with The Insights Association as well as ESOMAR Edelman Data and Intelligence conducts all research in accordance with local, national and international laws as well as in line with all Market Research Standards and Guidelines.

Nationwide, the Nationwide N and Eagle, Nationwide is on your side and Nationwide Retirement Institute are service marks of Nationwide Mutual Insurance Company. © 2023 Nationwide


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