Business owners struggle to separate personal and business expenses

Zach Mersberger’s passion for helping small and medium-sized business owners stems from his own first-hand experience of building out his own firm.

Before his family-owned firm Mersberger Financial Group merged with Merit Financial last year, he took on a leadership role in 2016, a time that, upon reflection, felt like coming into a family, first-generation business.

“When [my brother and I] joined, we were strategically trying to take those steps from a genuinely small business to an enterprise that had a lot of the infrastructure that a larger business would have, and then start to grow the business, both organically and inorganically,” he says.

Going through that process, he admits, allowed them to go through a number of challenges that they had to figure out and solve for. He also realized that while they might not be quite unique because every small business likely runs into the same challenges, his profession as an advisor would help him stand out, prompting him to specialize in helping small to medium-sized business owners.

“We had really good insights on how to successfully solve those challenges. Going through it led to the realization that it would be applicable to a lot of other industries and business owners, and this could be something that could give us credibility, because we’ve encountered these challenges ourselves and we've successfully gotten through them.

“It was easy to go out and connect with other business owners,” Mersberger added. “If they were encountering a challenge, it was easy for us to say, ‘Hey, we've been there, done that. Here's how we handle that. We can sit down with you and help you figure this out.’”

Mersberger says some of these challenges consist of cash flow management, succession planning, and retirement planning, to name a few. Behind those struggles is the fact that entrepreneurs, like financial advisors, sometimes struggle to balance the rest of the business.

“Owners are running that business because they're really good at what they do … but what we find is they typically aren't putting a lot of focus on the rest of the business, like the bookkeeping, what are the financials looking like? Do you have good margins? How is the cash flow? That's going to have a growing enterprise value over time,” he says.

Typically, Merseberger said, business owners don’t focus too much on “the bigger picture” until they get to a point in their career when they start to think about retiring and succession plans. Another sticking point comes from clients mixing their personal and business expenses, something he says is “very common.”

“When you look at the business’ books, it's almost just an extension of their personal balance sheet so it's really hard to get a feel for how profitable this business is,” he admits. “[We need to ask questions like] are we spending money in the right places? Do we need to be investing in other areas of the business to have more success?”

A lot of Mersberger’s process entails making sure clients keep the personal and the business side separate, and maintaining a clean picture of what the business looks like from a P&L and balance sheet standpoint. Then he starts to look at the long-term goals as a business owner and personal financial goals.

In almost every case of having business owner clients, Mersberger says all the planning that needs to be done requires a longer runway of time than one could anticipate. “You really need to start planning way earlier than you would think,” he says, noting that the clients and advisors may need to start preparing the business five years prior to a sale.

For many entrepreneurial clients, the business is their main financial asset so it’s “incredibly important” to get the planning, right and not to rush through the planning process, Mersberger says.

“Go into that planning process knowing there's going to be a number of major objectives. Most of those are not going to be quick and simple; they're going to require a lot of work, a lot of time, a lot of planning and analysis, and then a very clearly laid-out plan in order to execute it.”

Name: Zachary Mersberger
Position: Regional director and partner
Company: Merit Financial Advisors
Founded: 1998
AUM: Approximately $12 billion