When Joy and David McFarland joined the family's cattle breeding and genetics business at Hoover Angus Farm in 1989, they never dreamed it would turn into a nationally recognized enterprise that drew visitors from abroad.

The McFarlands sell their celebrated Angus cows to other farms and ranches throughout the U.S. and Canada, selling about 190 bulls and females at the farm's annual production sale in February.

"This is big-time business now," says Greg Driskell, a financial advisor with First National Bank in Creston, Iowa, who has worked with the couple since they joined the then nascent family business. (Raymond James is the third-party marketer for First National Bank.)

Like many small business owners, the McFarlands had a modest beginning. Even though they came from farming families, with histories dating back to original homesteads, they worked hard to beef up the business, building it nearly from scratch. The only help they received: Their parents offered them the chance to buy into a cattle herd at a preferred rate.

"They knew it was going to be an uphill battle, but they also had seen success in their parents and grandparents and they knew that if they were able to replicate that they would do well," says Driskell.

In fact, the McFarlands did very well. Their herd of 400 cattle has earned both national and international acclaim, with Chinese and Russian delegations visiting the Iowa farm to learn about cattle-raising and breeding techniques that they can duplicate in their own countries.

Indeed, their business has gotten to the point where they no longer have to work, but they choose to because, as Driskell puts it, "they're always going to be hard-working people."

"I look at where they started and where their assets are now and it's unbelievable," says Driskell. "It's fun to see the success of not only these people's hard work but also to see the IRAs and investments grow the way they have."

Business owners like the McFarlands, who start small and grow their businesses into major enterprises, are dream clients for advisors.

As their businesses grow, their advisors grow along with them. Of course, not all businesses make it quite as big as the McFarlands have done, but even for those that don't, the opportunity is worthwhile, say advisors. The robust size of the small business market-and the fact that it's often overlooked-makes it an attractive niche for advisors.

Small business owners tend to be high earners who need financial advice as their personal wealth grows. They're also eager to make referrals, according to many advisors who have them as clients.

Indeed, many advisors often include business owners as part of their ideal target market, says Kenton Shirk, an associate director at Cerulli Associates.

Business owners have complex planning needs ranging from asset protection to retirement, succession and estate planning.

"There's definitely an opportunity for the business owner to be a solid ideal client for an advisor," says Shirk, particularly if the owner wants to sell the business and looks to the advisor for advice on positioning the company for sale. "For those who have focused on this niche and built relationships with business owners who have a liquidity event, I think it can be a source of large clients," Shirk explains.

It's also smart for advisors to develop relationships with small business owners as foot traffic dries up at bank branches, says Tom Kane, managing director of KaneCarlton, a consulting and coaching firm.

Kane notes that advisors need to shift their focus to businesses and business owners and their banks' commercial lending arms as retail branches dwindle.

"If you look at the types of clients that a commercial lender is dealing with, almost every single one of those clients, if not every single one of them, is a prospective ideal wealth management client," he says.

BIG MARKET, SOME DRAWBACKS

The small business market is considerable. In 2010, there were 27.9 million small businesses with fewer than 500 employees and roughly 75% were sole proprietorships, according to the Small Business Administration.

This market, however, is not without drawbacks. Relatively few businesses survive long term, with only about half surviving five years or more. Only one-third survive more than 10 years.

Small business owners are also not typically looking for financial advice when they're starting out.

Young companies, those early in the business life cycle, have limited need for financial advisory services because they're investing everything in the business, according to consultants and advisors.

Most new entrepreneurs don't initially seek advice, says Michael Flanagan, a financial advisor with Wilson Bank & Trust in Lebanon, Tenn., who works with many contractors. "If they survive say to the fifth or sixth year, they will start to recognize that there are a lot of things to think about beyond just the technical aspect of whatever service they render." (Raymond James is the third-party marketer for Wilson Bank & Trust.)

Frank Berkowitz, a consultant and former longtime manager of the investment and insurance programs and director of small business at Astoria Federal Savings and Loan Association, agrees.

"Small businesses don't have a whole lot of money to spend on what they consider unnecessary to their business," he says.

According to Berkowitz, the opportunities small business owners represent are not any better than those offered by other prospective clients.

"They're no different than when we deal with personal clients," he says. "When you're dealing with a business owner, you don't know what assets they personally have. There are times when you would uncover assets and times when you wouldn't, but it would be no different than the opportunities we have with personal customers." He concedes, however, that advisors do on occasion find "some golden nuggets out there."

Despite the challenges and limitations, advisors are finding those golden nuggets. They're helping small business owners with myriad financial planning tasks, beginning with how to invest the money they accumulate as their businesses grow.

"They're always tight on money and looking for the most efficient way to invest," Driskell says of the farmers he works with.

In addition to farmers, Driskell works with other agriculture-related small business owners, such as fertilizer and farm equipment suppliers, who collectively account for roughly 12% to 15% of his book of business.

"Most farmers are so dedicated to their field of business that they don't understand investing," Driskell says. He sees his biggest role as helping to educate them on investment options available, mostly mutual funds, unit trusts, annuities, and some bonds and individual stocks.

When Driskell started with the McFarlands, for example, they "didn't have much of anything," he recalls.

"They decided to start some mutual funds and IRA accounts with me and over the years I've watched their business grow," he says. The couple's daughter, who is also in the business, as well as her fiancé now both invest with him.

MOAT BEFORE THE CASTLE

Layton White, an advisor with Bremer Bank in Devils Lake, N.D., who also works with many farmers and agriculture-related business owners, spends a great deal of time helping clients diversify their wealth. (Raymond James is the third-party marketer for Bremer.)

Some farmers are running multimillion dollar operations, but their businesses tend to be illiquid, he says, meaning they have all their personal and business assets tied up in equipment and land. "We encourage them to take money away from their core business operations and invest it in unrelated industries and unrelated account types, so they're not tied 100% to the ag market," Layton says.

Most small business owners are inclined to reinvest their profits in their business, magnifying the problem that White tries to help clients avoid.

While there are many reasons to reinvest in their operations, particularly when used to pay down debt, it's a good idea to invest excess profits.

"Business owners often spend excess profits on equipment to capitalize on tax deductions. We try to encourage them to invest in capital markets as an alternative to increase liquidity and diversify away from their core business," White says.

Like many advisors, White works hard to help clients protect their assets. Small business owners, more so than other individuals, need good life insurance, particularly if they're sole proprietors rendering services as electricians, plumbers, builders, carpenters and other trades.

"When a sole proprietor dies, the business dies with him," White says. Without proper insurance, the surviving spouse can suffer a significant drop in income, leaving him or her in a precarious financial situation.

For White, asset protection is so important it trumps helping clients grow their wealth. "Build the moat before the castle," he often tells other advisors looking to build business with small business owners. "They [small business owners] need to have the protection moat for their families before building their businesses and investment portfolios," White says, referring to things like estate plans, life insurance, disability insurance and other protections against possible interruptions to the cash flow for the families. "Try to provide coverage that can protect the families because they don't have the benefit packages of large companies," White explains.

Flanagan of Wilson Bank & Trust agrees. Advisors have to help small business owners "feel their pain so that they begin to think about things that are not just the day-to-day routine that they're seeing," he says.

Carpenters have to think beyond "putting a nail to a hammer" to basics such as payroll tax deposits, workman's compensation, and disability and life insurance.

Retirement planning is another area where small business owners typically need guidance.

Driskell and White urge farmers and other small business owners to enroll in simple retirement plans, known as SEP plans, which have very low custodial fees in the range of $10 to $25. Typical 401(k) plans, in contrast, have administrative costs in the range of $3,000 to $5,000, according to Driskell.

Small business owners are looking for someone to relieve them of the burden of taking care of a retirement plan, says Driskell. "They're busy running the business and doing their thing, so they want somebody who can come in who employees can work with," he says.

Some advisors, however, find retirement plans a hard sell for business owners, particularly if they're small enterprises with less than five employees, says Berkowitz. "If they had five to 15 employees, they might have some interest in 401(k)s, but it was very difficult getting a partner-an insurance company or mutual fund company-that would work with those really small businesses," Berkowitz says.

FAIR DOESN'T ALWAYS MEAN EQUAL

One area that does resonate with many business owners-particularly if they're wealthy-is estate planning.

As business owners get older, they want to look at ways in which to pass assets to the next generation.

Driskell's and White's bigger accounts, for example, come from older farmers who have millions of dollars of net worth and investable assets and want to pass those assets along in as tax-efficient a manner as possible in an estate plan.

Estate planning is particularly challenging for family farms with multigenerational partners and owners, says White. The older generation is not nearly as business savvy as the younger generations and is adamantly against using financial advisors because older farmers don't recognize the value of the land and the net worth they're dealing with, according to White.

"We see business owner after business owner in the farm industry who's older and may have $5 million worth of land and be driving around in a 20-year-old pickup," he says.

The estate planning issues for multigenerational farms are particularly acute when there are children involved with the farm and children living in other parts of the country who are not involved with the farm.

One of the challenges in dividing such an estate is "getting the outside children to understand that fair is not necessarily equal division of assets," Layton explains.

To pay off outside family members, advisors often recommend a wealth- transfer strategy that involves the purchase of life insurance tied to a buy-sell agreement drafted by an attorney.

Under this arrangement, the farming child pays the premium on life insurance policies on the parents or the founding farmers. When the parents die, the farming child uses the proceeds of the life insurance policies to pay the other siblings.

This way the farming child "can continue to own that family business for future generations and not have to sell that business to pay out relatives who were not involved in the day-to-day operations," Layton explains.

The solution, however, meets stiff resistance from the older generation, who oppose any bank, financial advisor or outside influence.

"Getting the older generation to recognize that they're really causing issues for the younger generations getting involved" is a huge challenge for advisors, says White.

Business owners need help with more than just their personal assets and the succession of those assets. They need help with financing and at some point selling their business.

Wilson Bank's Flanagan notes that advisors need to make small business owners think of the risks that most entrepreneurs are not considering because they're too focused on their trade.

Contractors, for example, need a backup plan should there be a slowdown in construction. Instead of home-building, a contractor might think about making repairs to existing homes. "They have to focus on more than just being a good technician. They also have to be a manager, and they have to be an entrepreneur, thinking about what's the future of this business. The future of any business ultimately is to sell it, not just to have a job," Flanagan says.

Unfortunately, not enough advisors think to help small business owners with growing, financing and eventually selling their businesses, leaving a huge opportunity untapped, according to consultants.

"Most small business owners are being serviced as investors rather than as small business owners," says Scott Stathis, a managing director at BISRA, a research and consulting firm for banks and credit unions.

Not surprisingly, the oversight has lamentable consequences. Because advisors tend to focus on the business owner's personal assets, they lose most of the assets tied to the business when it's sold.

"It goes somewhere else because the advisor didn't help with the transition," explains Stathis. "It's like somebody pulls a plug on a drain and a bunch of assets go flowing out simply because the advisor didn't think about strategically servicing that client not only as an investor but also as a small business owner."

The money left on the table is significant. In a survey BISRA conducted last year, more than four in five bank investment services executives (82%) estimated they kept less than 30% of the assets that result from the sale of client businesses. One in four said they kept less than 10% of the assets.

Advisors seeking to pursue small business owners should specialize in an industry, according to analysts. Those who do "will have a much easier time marketing their distinct services," says Stathis. "They would have a point of differentiation. The word of mouth would probably flow easier about that particular advisor because he's not your everyday vanilla advisor. He's a specialist advisor," he says.

Specializing, however, carries some risk, Cerulli's Shirk warns advisors. "One of the challenges of any niche is that you could potentially take on the risks that are inherent in that industry," he says. Shirk recalls an advisor who specialized in construction businesses. In 2008, when construction came to a near standstill, the advisor had to abandon his niche to pursue another area.

Shirk urges advisors to be specific in marketing themselves. "Specificity becomes really important," he says, explaining that advisors need to spell out what hot button issues they can help small business owners tackle.

It's also important that advisors network with lawyers, accountants and other business owners and develop relationships with officers in the commercial lending group, an important source of referrals for many advisors.

When fishing for referrals, advisors should be sure that they're articulating the value for the client, says Shirk.

Apart from this, advisors need to be patient. "Plant the seed and hang in there," says Driskell. "The early years might be leaner than you'd like but there are pay-offs in the end."

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