What is a financial coach and what they do?

As rising inflation and volatile supply chain issues put extra pressure on small business owners, they're looking to save money and find ways to plan for the future.

Small businesses that don't have a CEO in their ranks have another way to boost their bottom lines by hiring a financial coach.

What is a financial coach?

A financial coach works with a small business owner to create a plan that can cover everything from learning basic business concepts to managing cash flow. Other issues include budgets, paying expenses, drawing a salary, earmarking funds for taxes, strategy, and even accomplishing a goal like reducing the client's work hours. A coach will also help a client with managing emotions about finances because the coach can remain objective. Some clients may find their health, work relationships, and even marriages improve, says Joshua Schumm, who runs Steward Don't Squander Coaching in Ames, Iowa.

The field of financial coaches is relatively new. Many coaches have corporate financial backgrounds like CPAs who shift into coaching because they enjoy working with people, and they can make their own hours. There is no one-size-fits-all approach to working with a small business owner.

A Financial coach is not your financial adviser

The main difference between traditional consultants like a CPA or certified financial planner is that financial coaches are not regulated. Coaches cannot offer investment advice unless they have the corresponding credentials. In fact, giving investment advice is a red flag and illegal.

The owner is still the CEO

Like hiring a personal trainer, holding clients accountable is the key to success. “It's not easy; it's going to be work," says Annette Harris of Harris Financial in Jacksonville, Fla. “But, you're in control. [You need to] take responsibility for your life."

Even if a small business owner can afford a CFO or other financial expert, owners usually abdicate their responsibilities instead of delegating, according to Schumm. It's important to know that the business owner should be in the driver's seat, not the other way around.

“I'm not a magician," Schumm says. “I am supporting them. I don't take over the business, I ask: Where do you want to go? We stabilize and work on a plan [together]. Most clients stick around for five years," he says.

A small business owner who finds managing cash flow and paying for expenses challenging has good company, coaches say. One widespread problem is looking at a (temporary) high balance in the bank account as a sign the business is flourishing. A financial coach can quickly bring an owner back to reality as expenses, payroll, and taxes lurk on the horizon.

How investing in a financial coach can pay off

For a dedicated small business owner, working with a financial coach could mean saving money, or even saving a company.

Schumm helped two clients, a married couple, who were $45,000 grand in the hole turn their business around. In one year, they scored a $55,000 profit. The business revenue increased from $250,000 to $350,000 in one year.

How to hire a financial coach

Referrals, word of mouth, Facebook groups, social media, and professional organizations are popular ways to find a financial coach.

Ask around for coaches who have worked in similar businesses, recommends Stevie Smith Jones, of Balanced By Stevie, in Birmingham, Ala. She works with female entrepreneurs. “Follow your instincts," she says. “It's common to feel extremely vulnerable. I like to try to be as supportive as possible and make them feel safe."

Harris specializes in working with military veterans. “It's a passion," she says.

Fees for financial coaches range from $200 to $600/hour, but some work on a sliding scale

Some coaches will take a percentage of the business, say 1%. Another option is to hire a financial coach for a half- or all-day fee. These events are sometimes called VIP days. A six-month period is typical for coaching a client.

For owners who can't afford those fees, www.findhelp.org is a nonprofit that works with a sliding scale and includes free sessions. The Association for Financial Counseling & Planning Education, afcpe.org, offers scholarships and grants.

Research financial coaches for businesses versus coaches for personal finance issues

Popular financial coaching businesses, such as Dave Ramsey's, usually focus on personal finance as opposed to coaching business owners. (Schumm specializes in working with small businesses and is an independent contractor for Ramsey.)

Why you shouldn't be afraid to hire a financial coach

“People are hesitant to reach out for help," says Smith Jones. “I want to debunk this. If I hadn't gone into accounting, I wouldn't have known any of this. Everyone is clueless. It's OK and don't feel bad."

Make sure to check the refund policy

Business owners have little recourse if a coach doesn't work out because the industry isn't regulated. Some coaches will refund your money. Clients can also report unscrupulous financial coaches to the BBB.

“We won't see regulation soon because financial coaching is a part-time industry," Schumm explains.

Check out free resources

Harris recommends connecting with local SBA offers for free courses on managing business finances. She also advises joining a local Chamber of Commerce for free business formation courses or development programs. Small business owners can receive advice from established businesses or find a mentor to help develop business strategy.