Practical analysis for investment professionals
18 January 2017

Working Forever: How to Advise Entrepreneur Clients

On 20–21 September, CFA Institute will host Diversity & Inclusion 2018: Strategies for Success in San Francisco, a conference for leading researchers and investment practitioners to discuss practical strategies that can improve decision making at investment firms.

When Barbara Roberts discusses the dilemmas facing entrepreneurs, it makes sense to listen.

Though Roberts has worn many hats during her long career, that of an entrepreneur is the one closest to her heart. Not only has she started, managed, and sold several businesses, she has also spent many years consulting with entrepreneurs — helping them manage their wealth and, sometimes, the sale of their companies.

In one of her early business ventures, Roberts lead the transformation of FPG International from a staid stock photography agency to a world-renowned and state-of-the-art company, with revenue more than six-times greater than when she first took over. She sold the company in 1997 for $60 million in cash.

Currently the entrepreneur in residence at Columbia Business School, Roberts is also one of the leaders of Tiger 21, a peer-learning group for entrepreneurs who have sold businesses for $10 million or more.

Roberts shared the lessons she has learned in her over 20 years as an entrepreneur and entrepreneur adviser at the CFA Institute Alpha and Gender Diversity: The Competitive Edge conference. She focused on what she calls “the owner’s journey,” specifically the issues owner-entrepreneurs must navigate in managing their wealth. Roberts said that advisers need to be aware of these unique challenges and prepare for them accordingly.

Research indicates that many ultra-wealthy people in the United States grew up poor or middle class, Roberts observed. They need to learn about asset allocation, benchmarks, who to trust with their wealth, and what financial values to maintain. Advisers can serve these clients by focusing on those needs.

Roberts’s own research in “The Owner’s Journey” provides a road map for entrepreneurs looking to transfer or sell a business. She explained that there are a number of potential outcomes, including an initial public offering (IPO), selling to a strategic buyer, selling to a financial buyer, transferring to a family member or a partner, or bankruptcy or liquidation. Owner-entrepreneurs need to stay focused on where the business is going, while advisers need to concentrate on potential exit strategies and discuss them with their clients.

Companies can grow large “without analyzing the numbers,” Roberts noted. In her experience, most entrepreneurs went into business for specific reasons: to make a difference, fix a problem, create something new, or to act on an insight — not necessarily to get rich. Thus, most entrepreneurs are “risk controllers” not “risk takers.” So investment advisers must help entrepreneurs attain a full picture of their financial situation, while also analyzing and managing their risk.

When dealing with entrepreneur clients who may want to sell their companies, advisers need to make it clear that profits and cash flow are the bottom line. Some clients may not have this on their minds, particularly when they are focused on day-to-day operations or the company’s mission.

Many entrepreneurs hope to transfer their business to a family member. The best way to prepare for that, Roberts said, is to encourage clients to bring their children in early and acclimate them to the idea and the responsibilities.

Some entrepreneurs, on the other hand, act as though they will run their business forever and never do any transfer planning. This approach has obvious drawbacks. Financial advisers should work with their entrepreneur clients to make sure a succession plan is in place.

Roberts’s white paper, “Life After an Exit: How Entrepreneurs Transition to the Next Stage,” deals with what clients do after the sale of their business. She interviewed 25 entrepreneurs who sold their companies for between $10 million and $1 billion, focusing on what happened following the sale and how each learned to manage their wealth.

She found that after selling, many former business owners fall into a depression. Their work provided them with a community, structured their time, and gave them a reason to get out of bed each day. It can be hard to adjust when they no longer have all that. Advisers should be mindful of the potential for such post-sale angst.

Some final words of advice from Roberts:

  • For advisers: Consider having your entrepreneur-clients meet each other for support and to share ideas. Know your entrepreneur’s family.
  • For entrepreneurs: Make sure your company is always ready for sale. Put things in writing. List your three main goals for the next 12 months, and work to create value.  Value often comes from building something that is the biggest, boldest, broadest, or the best.
  • And one last tip for everyone: Don’t be afraid to fail. The best things can come out of the worst adversity. Don’t be afraid to think like a five-year-old with a musical instrument: Sometimes you just have to try it, so go ahead and do it.

If you liked this post, don’t forget to subscribe to the Enterprising Investor.


All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images/OstapenkoOlena

About the Author(s)
Cheryl L. Evans

Cheryl L. Evans, J.D., LL.M., is a director in Educational Events and Programs at CFA Institute. She has also served on the Future of Finance team and was a senior investigator in the Professional Conduct Program at CFA Institute. Prior to joining CFA Institute, she held various legal positions, including: Senior Counsel at the U.S. Securities and Exchange Commission; Trial Attorney at the U.S. Department of Justice; and Special Assistant U.S. Attorney in the Eastern District of Virginia, handling criminal matters, among others positions. She holds Bachelor of Arts, Juris Doctor, and Master of Laws degrees.

1 thought on “Working Forever: How to Advise Entrepreneur Clients”

  1. Clement Gavi says:

    Insightful
    ‘The best things can come out of the worst adversity.’
    For at least you learn from the worst adversity, you grow by this experience.

Leave a Reply

Your email address will not be published. Required fields are marked *



By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.

Close