This article is about the importance of using a financial advisor for starting a business. Did you know that 20% of businesses fail in their first year, and by the fifth year, that number jumps to a staggering 50%? Starting a business is thrilling, but it’s easy to get overwhelmed by the complexities that come with it. Whether you’re a startup founder chasing a dream or an entrepreneur ready to scale, building a solid foundation is crucial—and that’s where a financial advisor comes in. 

Too often, founders get swept up in the excitement of launching and skip the vital step of seeking expert advice. However, a good financial advisor can make all the difference in building a thriving business versus becoming just another statistic.

Why Talking to a Financial Advisor Is Crucial

One of the biggest reasons why early-stage startups fail is financial mismanagement. Whether this involves underestimating the cost to launch or overestimating revenue, money matters are often the make-or-break factor. Many startup founders struggle with key questions like:

• How much funding do I need?

• What are the best sources for raising capital?

• How much equity should I offer to potential investors?

• What’s the best way to structure my business financially?

• How should I value my startup?

• How do I create accurate financial projections?

These are just the tip of the iceberg. Along with these crucial decisions, founders must also figure out tax obligations and manage cash flow. Solving these issues early on is critical to avoiding the financial chaos many startups face in their formative stages. A financial advisor can guide these critical financial decisions, helping you avoid costly missteps and set your business up for long-term success. 

Below are some crucial ways startups can benefit from working with an advisor.

1. Developing a Solid Plan

Before you even think about approaching angel investors or kickstarting operations, you need a comprehensive financial plan. Businesses with a strategic plan are 152% more likely to thrive. A knowledgeable advisor can help you evaluate your capital needs, identify potential revenue streams, and develop a strategic financial roadmap. They bring deep industry knowledge to help you avoid financial missteps, like overextending your budget early on or offering too much equity stake to prospective investors.

Without the guidance of a good startup advisor, many founders miss out on key opportunities and find themselves scrambling for funding when times are tough.

2. Staying Legally Protected

Let’s be real—dealing with legal paperwork can be a nightmare, especially when starting. Two percent of startups fail due to legal problems, like licensing issues, setting up the wrong entity structure, or not having a partnership agreement that protects every co-founder’s interests. Advisors can act as a bridge between your business goals and the complex legal world. They’ll ensure all your agreements, equity deals, and partnership contracts are airtight.

2% of startups fail due to legal problems.
Source: explodingtopics.com 

3. Avoid Common Financial Pitfalls

Early-stage businesses often run into trouble because they don’t anticipate the financial hurdles ahead. Whether managing unexpected costs or planning for taxes, financial advisors provide valuable insights that can prevent your business from falling into the same traps as other startups.

They help with tax planning, creating a smart equity compensation arrangement, and even advise on business insurance policies needed to protect your business from lawsuits, natural disasters, and cyber attacks. With their guidance, you can avoid running out of capital when you need it the most.

4. Build Strategic Alliances Through Networking

One often-overlooked benefit of hiring a financial advisor for starting a business is their ability to connect you with other key players in the startup world. Advisors are well-connected within the business ecosystem, providing you with access to industry experts, potential investors, and even board members.

These networking opportunities are essential for scaling your business. Advisors can help you identify new advisors for your advisory board or provide introductions to potential clients or investors, giving your startup an edge in a competitive market.

The Aligned Perspective: Financial Advisors for Business Founders

The numbers don’t lie: half of all businesses fail by year five. Many of these failures stem from poor financial planning and mismanagement. Founders who consult a professional advisor early on have a much better chance of success. Startup Genome found that startups with at least one advisor are twice as likely to scale quickly, and those with five or more advisors are seven times more likely to experience growth.  No entrepreneur should go it alone. By tapping into the expertise of a financial advisor, you gain a valuable resource that provides essential business advice, helps you mitigate risks, and ensures that your startup is set up for success. Don’t wait until it’s too late—talk to a financial advisor today and build a lasting business.