What Business Should I Start? 6 Factors to Help You Decide
For new entrepreneurs, it can be challenging to decide which kind of business to start. This choice can determine the outcome of your future business’s success, and the right path can depend on multiple factors like budget, time, scalability and more.
Here are some important items to consider when choosing what business to start and how to determine the right one for you.
[Read: How to Research Your Business Idea]
Budget
It’s important to plan out your budget upfront to ensure you’re able to properly fund your business idea. Start by analyzing your current financial situation and how much money it will take to get the business started. Consider the actions you’ll take to raise additional funds, whether it’s attracting investors, applying for capital or fundraising.
Next, create a financial plan to map out exactly what it will cost to run your new business successfully. For example, if you’re opening up a brick-and-mortar store, consider the costs of furniture, rent and other expenses necessary to open and run your business.
Available time and resources
Consider the amount of time and resources you will need to get your business idea off the ground. Studies show it takes two to three years on average for a business to become profitable, and during that time you’ll be expending a lot of effort as you launch and maintain your business.
Take inventory of the resources you have available to you, including online assistance from websites such as the Small Business Association and the U.S. Chamber of Commerce. Additionally, contemplate the pros and cons of acquiring a business partner to assist with the resources and share the workload.
Studies show it takes two to three years on average for a business to become profitable, and during that time you’ll be expending a lot of effort as you launch and maintain your business.
Scalability
It’s important to consider a future business’s scalability. Here are a few questions to consider when thinking about whether your business idea can grow efficiently and sustainably:
- Does your business idea meet ongoing customer demand?
- Can you consistently duplicate the product or service multiple times?
- Will the idea meet customer needs and standards as the business grows?
- Does your idea have to be constantly reevaluated or adjusted over time?
If you answer “no” to these questions, this may be a sign your business idea won’t be easy to scale.
[Read: 13 Post-Pandemic Businesses You Can Start Now]
Market size and demand
Starting a business requires research into your target market or your business’s ideal audience and consumer base. Consider how your business can uniquely solve your customer’s problem. Ask yourself what they would do without your product or service.
This is also an ideal time to research your competition and learn why consumers are drawn to services other than yours. Additionally, examine if your business idea has enough demand to become profitable. It can be difficult to break into a market with more competition than demand.
Your industry expertise
It’s important to have a basic foundation of knowledge to start a business. It also helps to have a certain expertise in your business idea before launching. Start by researching business resources and the competition to see if your business idea is feasible in the current market.
Next, brush up on your knowledge of the industry your business idea is in. Brainstorm how you can contribute to this industry and how your unique viewpoint can impact the consumers in the industry. Additionally, make the time to take relevant courses and classes or hire a consultant to assist you in the business process. You can even obtain a degree or certificate in your target industry to add credibility.
Your passion and interest
Every great business idea comes from either an interest or a passion for that particular idea, service or product. Passion and persistence is crucial, as starting a business comes with late nights, fear of failure and multiple obstacles along the way. Ensure that the people you’re working with are in it for the long haul through a mutual desire to pursue this business idea. If you start your business with an idea you’re passionate about or interested in, it can sustain you through difficult times.
Ready to start your business? Check out our step-by-step guide to help you get it off the ground.
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Published August 02, 2021
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Are you seeking assistance with your financial management? If so, you’re not alone. Many Americans could benefit from financial guidance. In fact, according to the National Financial Educators Council, the average American incurs a cost of $1,500 per year due to a lack of personal finance knowledge.
Choosing a good financial advisor can help you avoid these costs and focus on your goals. Financial advisors aren’t just for rich people—working with a financial advisor is a great choice for anyone who wants to get their personal finances on track and set long-term objectives. To find the ideal financial advisor for your requirements, consider following our five key steps.
Related: Find A Financial Advisor In 3 minutes
Step 1: Decide What Part of Your Financial Life You Need an Advisor For
Before you speak to a financial advisor, decide which aspects of your financial life you need help with. When you first sit down with an advisor, you’ll want to be ready to explain your particular money management needs.
Keep in mind that financial advisors provide more than just investment advice. The best financial planner is the one who can help you chart a course for all your financial needs. This can cover investment advice for retirement plans, debt repayment, insurance product suggestions to protect yourself, your family and estate planning.
Depending on where you are in life, you may not need comprehensive financial planning. People whose financial lives are relatively straightforward, like young people without families of their own or significant debt, might only need help with retirement planning.
People with complex financial needs, however, may need extra assistance. They could be looking to establish college funds or trusts for their children, navigate aggressive debt payment situations or solve tricky tax problems. Not all types of financial advisors offer the same menu of services, so decide which services you need and let this guide your search.
Step 2: Learn About the Different Types of Financial Advisors
There’s no federal law that regulates who can call themselves a financial advisor or provide financial advice. While many people call themselves financial advisors, not all have your best interest at heart. That’s why you have to carefully evaluate potential financial advisors and make sure they are good for you and your money.
Part of learning about the different types of advisors is understanding fiduciary duty. Some, but not all, financial advisors are bound by fiduciary duty, meaning that they are legally required to work in your financial best interest. Other people who call themselves advisors are only held to a suitability standard, meaning they only must suggest products that are suitable for you—even if they’re more expensive and earn them a higher commission. (The SEC is trying to regulate this, though, by limiting the use of “advisor” to those who hold themselves to a fiduciary standard.)
Regardless of which kind of advisor you choose, you should make sure you know how they earn money. This helps you determine if their recommendations are actually better for you—or for their wallets.
Here’s how to think about these four types of financial advisors:
Types of Financial Advisors How They WorkFee-Only Financial Advisors
Fee-only financial advisors are paid based on a percentage of your invested assets, a flat annual fee or an hourly rate.
Commission-Based Financial Advisors
Commission-based financial advisors usually advertise their services as free, but are paid a commission based on products they sell you including investments and insurance policies.
Registered Investment Advisors
Registered investment advisors (RIAs) are large firms that are typically paid through an annual account fee or a percentage of your invested assets.
Robo-Advisors
Robo-Advisors are low cost automated online platforms. You pay for the service through account fees which are typically a flat annual or monthly rate or a percentage of your invested assets.
Fee-Only Financial Advisors
Fee-only financial advisors earn money from the fees you pay for their services. These fees may be charged as a percentage of the assets they manage for you, as an hourly rate or as a flat rate.
Almost all fee-only advisors are fiduciaries. Generally speaking, they have chosen to work under a fee-only model to reduce any potential conflicts of interest. Because their income is from clients, it’s in their best interest to make sure you end up with financial plans and financial products that work best for you.
Financial Advisors Who Earn Commissions
Some financial advisors make money by earning sales commissions from third parties. Among financial advisors who earn sales commissions, some may advertise themselves as “free” financial advisors who do not charge you fees for advice. Others may charge fees, meaning they derive only part of their income from third-party commissions.
Either way, financial advisors who earn third-party sales commissions derive some or all of their income from selling you certain financial products. If you choose to work with a financial advisor who earns sales commissions, you need to take extra care.
Commission-only advisors are not fiduciaries. They work as salespeople for investment and insurance brokerages and are only held to suitability standards. In contrast, some fee-based financial advisors are fiduciaries, though it’s important to determine if they’re always acting as fiduciaries or if they “pause” fiduciary duty when discussing certain types of products, like insurance.
Related: Find A Financial Advisor In 3 minutes
Keep in mind, commissions aren’t bad in and of themselves. They’re not even necessarily red flags.
Some financial products are predominantly sold under a commission model. Take life insurance: A fee-based planner who receives compensation for helping you purchase a life insurance policy may still have your best interests at heart when advising on other financial products.
“To be clear, there’s nothing wrong with paying the commission for life insurance,” says Karen Van Voorhis, a fee-based certified financial planner (CFP) and director of financial planning at Daniel J. Galli & Associates in Norwell, Massachusetts. “That’s how the structure of that industry works.”
Purchasing financial products via financial advisors that earn commissions may be a matter of convenience, especially if someone will receive a commission regardless of where you buy the product. What’s important is understanding the difference. And if you work with a fee-based financial advisor, understand when they are acting as a fiduciary, especially when they help you purchase financial products.
Looking For A Financial Advisor?
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Find A Financial AdvisorRegistered Investment Advisors
Registered investment advisors (RIAs) are companies that provide fiduciary financial advice. RIAs employ investment advisor representatives (IARs), who are bound by fiduciary duty. A registered investment advisor may have one or hundreds of IARs working for it.
IARs may call themselves financial advisors and may be fee-only or fee-based. Some may have additional credentials, including the certified financial planner (CFP) designation.
“The certified financial planner designation is really the gold standard in the financial planning industry,” says Van Voorhis. A CFP designation indicates a financial advisor has passed rigorous industry exams covering real estate, investment and insurance planning, and has years of experience in their field.
Because of their wide range of expertise, CFPs are well-suited to help you plan out every aspect of your financial life. They may be particularly helpful for those with complex financial situations, including managing large outstanding debts and will, trust and estate planning.
Robo-Advisors
Robo-advisors offer low-cost, automated investment advice. Most specialize in helping people invest for mid- and long-term goals, like retirement, through preconstructed diversified portfolios of exchange-traded funds (ETFs).
“For younger people who are really tech-savvy, a robo advisor just to manage retirement funds could be a perfect solution,” says Brian Behl, a CFP at Behl Wealth Management in Waukesha, Wisconsin. “I don’t think they’re going to get as in-depth advice on insurance and retirement and taxes.”
People with complex financial needs should probably choose a conventional financial advisor, although many robo-advisors provide financial planning services a la carte or for higher-net-worth clients.
“While the robo-advisors have really disrupted the industry…I do think there’s still a place for human advisors right now,” says Corbin Blackwell, a CFP at robo-advisor Betterment.
Betterment, for example, allows clients to purchase individual financial advising sessions, and Personal Capital and Betterment provide regular financial planning for clients with higher account balances for a management fee.
Before selecting a financial planner, clarify your financial objectives. Are you focusing on retirement planning, estate planning, investment management, tax strategies or a combination of these?
– Kyle McBrien, CFP and financial planner at Betterment
Step 3: Choose What Kind of Financial Advice You Need
Services offered by financial advisors vary from advisor to advisor, but they may provide financial advice on any of the following topics:
- Investment advice: Financial advisors research different investment options and make sure your investment portfolio stays within your desired level of risk.
- Debt management: If you have outstanding debts, like credit card debt, student loans, car loans or mortgages, financial advisors will work with you to chart a plan for repayment.
- Budgeting help: Financial advisors are experts in analyzing where your money goes once it leaves your paycheck. Advisors can help you craft budgets so you’re prepared to reach your financial goals.
- Insurance coverage: Financial advisors may examine your current policies to identify any gaps in coverage or recommend new types of policies, like disability insurance or long-term care coverage, depending on your financial situation.
- Tax planning: Tax planning involves strategizing ways to decrease the amount of taxes you may pay, like by large charitable donations or tax-loss harvesting. Keep in mind that not all financial planners are tax experts and that tax planning is different from tax preparation. You will probably still need a CPA or tax software to file your taxes.
- Retirement planning: Financial advisors can help you build funds for the ultimate long-term goal, retirement. And then, once you’re retired or nearing retirement, they can help ensure you’re able to keep your money safe.
- Estate planning: For those who wish to leave a legacy, financial advisors can help you transfer your wealth to the next generation, whether that’s family, friends, or charitable causes.
- College planning: If you hope to fund loved ones’ educations, financial advisors can craft a plan to help you save for their higher education.
In addition to investment management and financial planning, financial advisors also offer emotional support and perspective during volatile economic times. During the beginning of the coronavirus pandemic in March of 2020, for instance, client demand for financial advisor contact increased by almost 50%.
Related: Find A Financial Advisor In 3 minutes
“I think that during these times, we can be a source of reason,” says Blackwell. “We can weather the storm. We’ve built this portfolio for a reason.”
When choosing a financial advisor, make sure they offer the services you’re looking for in your financial and non-financial lives.
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Find A Financial AdvisorStep 4: Decide How Much You Can Pay Your Financial Advisor
It used to be that financial advisors charged fees that were a percentage of the assets they managed for you. Today, advisors offer a wide variety of fee structures, which helps make their services accessible to clients of all levels of financial means.
- Commission-only financial advisors may seem free on paper, but they may receive a portion of what you invest or purchase as a payment. These “free” financial advisors are typically available through investment or insurance brokerages. Remember, these advisors may only be held to suitability standards, so they may end up costing what you would pay for a similar financial product suggested by a fiduciary financial advisor—or more.
- Fee-only and fee-based financial advisors may charge fees based on the total amount of assets they manage for you (assets under management), or they may charge by the hour, by the plan, through a retainer agreement, or via a subscription model. Common average financial advisor fee rates are listed in the table below:
Percentage of AUM
1.0% (0.25%-0.5% for robo-advisors)
Hourly fee
$250
Per plan
$2,000
Retainer
$6,000
Step 5: Research Financial Advisors
Financial advice comes in many forms, and there are a variety of different kinds of financial professionals, so you need to do your homework. Make sure the advisor guiding your financial decisions is trustworthy and capable.
There are a few good ways to find a financial advisor. Ask friends, family and peers for recommendations when trying to find a financial advisor near you. Alternatively, look for financial advisors online. Many professional financial planning associations provide free databases of financial advisors:
When evaluating advisors, be sure to consider their credentials as well as research their backgrounds and fee structures. You can view disciplinary actions and complaints filed against financial advisors using FINRA’s BrokerCheck. And remember, just because someone is part of a financial planning association, that doesn’t mean they’re a fiduciary financial advisor.
Can Financial Advisors Give Economic Insights?
A financial advisor can help you make decisions based on current economic conditions that you may not be aware of. In the first quarter of 2024, we’re in a high-interest rate environment with inflation cooling down but still a significant factor. A financial advisor may urge you to pay off high-interest debt, take advantage of high-yield savings accounts, and continue to invest in tax-efficient accounts so you aren’t actively losing money to inflation.
Key Questions To Ask When Choosing a Financial Advisor
When meeting a financial advisor for the first time, it’s important to obtain the answers to these questions and ensure you’re satisfied with their responses:
- Fiduciary status: Are you a fiduciary, committed to acting in my best interest?
- Compensation structure: How do you make money? Understand their fee structure and any potential conflicts of interest.
- Consistency of fiduciary duty: Do you always act as fiduciaries, even when selling commission-based products?
- Financial planning approach: What is your approach to financial planning? Learn about their strategies and methodologies.
- Available services: What financial planning services do you offer? Ensure their offerings align with your specific needs.
- Client profile: What kind of clients do you typically work with? Confirm if they have experience catering to clients similar to you.
- Account minimums: Do you have any account minimums? Determine if their requirements match your financial situation.
- Conflicts of interest: Do you have any conflicts of interest in managing your money? Ensure transparency and alignment of interests.
- Required information: What information do you need me to provide to develop my financial plan? Gather relevant documents.
- Meeting frequency: How many times and how often will we meet? Establish expectations for ongoing communication.
- Collaboration with advisors: Will you collaborate with your other advisors, such as CPAs or attorneys? Coordinate efforts for comprehensive financial management.
Related: Find A Financial Advisor In 3 minutes
Bottom Line
Because of the ambiguity in the industry, you have to exercise caution to make sure you get the right financial advisor who meets your fiduciary and financial needs. That said, when you choose the right financial advisor for you, they can help you achieve your financial goals and financially protect your loved ones and their futures.
So much of what I do in a life-centered approach to financial planning and wealth management is walk out life with people. I think there’s value in an ongoing relationship where somebody can help you walk through the various waypoints you’re going to come to.
-Wes Brown, a CFP at CogentBlue Wealth Advisors in Knoxville, Tennessee
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Find A Financial AdvisorVia Datalign Advisory
Financial Advisor Frequently Asked Questions (FAQs)
What is a financial advisor?
Financial advisors are personal finance experts who give you financial advice and manage your money. Some—but not all—are fiduciaries. A fiduciary acts only in your best financial interest.
“A financial advisor is like a coach,” says Matt Chancey, a certified financial planner (CFP) at Dempsey Lord Smith in Tampa. “It helps to have someone keep you accountable to your goals and make sure that you aren’t making any major missteps.”
What can a financial advisor do for you?
A good financial investment advisor can evaluate your current situation and develop a comprehensive plan to guide you through your financial life.
“You don’t know what you don’t know,” says Marianela Collado, a CFP and certified public accountant (CPA) at Tobias Financial Advisors in Plantation, Florida. “By opening your finances up, a good financial adviser can suggest a wide range of opportunities that the client probably never thought of or wouldn’t even know to ask for.”
Who needs a financial advisor?
Though some people may think they don’t need a financial advisor until they’ve amassed at least $1 million, the amount of assets you hold shouldn’t be the sole determining factor. In fact, financial advisors work with clients of all tax brackets and backgrounds.
How much does a financial advisor cost?
Financial advisor fees can vary widely. This is due to there being different methods for a financial advisor to generate their income. Some advisors are fee-only. Other advisors are commission-based. Some advisors even work on a hybrid model between the two.
It’s recommended that you research how the individual advisor you’re choosing generates their income before starting to work with them.
When should I get a financial advisor?
Financial advisors become most helpful when your financial life becomes complex. That might be when you get married, have children, get divorced, are managing many competing debts, come into an unexpected windfall or are navigating end-of-life financial decisions.