Case Study: Differing Over An Opportunity – role of a financial advisor – Brief Article

Donna Taylor, a certified public accountant, has a dilemma. Her clients, Bernie and Polly Wheeler, are an unbeatable father-daughter partnership at Wheeler Flooring, their family-owned chain of flooring-distribution centers.

Three months ago, the company acquired another small chain, positioning the flooring chain as the region’s largest and best-known. Now, unexpectedly, they have an opportunity to acquire yet another chain with identical products in an abutting region. The two acquisitions would double the company’s annual revenues to $30 million and make Wheeler Flooring one of the nation’s largest floor-covering distributors.

The second acquisition would mean a great opportunity for increased sales and market control but would also require a substantial increase in inventory and receivables.

Donna, 42, has been the company’s most trusted outside adviser for eight years. She has a strong relationship with both Bernie, 55, the firm’s president, and Polly, 33, who is executive vice president and who will succeed her father as leader and owner of the company.

Bernie and Donna think the consolidated pro forma financial statements of the second company look good and support the additional acquisition. But Polly, who has been told by her father that the decision is hers, is concerned. She is not sure that such a major risk is right just now. Both she and Bernie look to Donna for support.

Donna is unsure what her role should be at this point. “To whom am I accountable?” she wonders. “To Bernie or Polly or the company?”

Donna’s role is to provide quality service to all three. When an adviser represents a family business, it is common to have both the business and its principals as clients.

Each client may require different, and at times conflicting, services to achieve the objectives of each. Each client will assume Donna is providing the services that each requires unless there is an understanding otherwise.

If the clients’ interests conflict with one another, it would be appropriate for the adviser to inform all parties of the conflict. So far, the facts in the Wheeler Flooring case do not present a professional conflict for Donna because no one is requesting that she act as an advocate or arbitrator.

For Donna to provide quality service–not advocacy–all the clients should be fully informed of their options, risks, and opportunities. Donna needs to make all parties aware of the investment risks and potential rewards.

This might include designing a risk/reward analysis for the business, for Bernie, and for Polly. Bernie should be advised of the impact of the investment on his personal liquidity as he approaches retirement. All parties should be advised of the increased management pressures associated with rapid growth and of the impact such growth will have on personal lifestyles.

If Donna cannot be of assistance to a client for any reason, she should explain why and advise that client to seek further assistance. If requested to do so and if it’s appropriate, she can provide referrals.

Donna’s role here is no different from what it has always been. Her financial advice is a given. However, she can do much more than provide financial counsel.

CPAs are often trusted advisers because of the wealth of experience that they can draw upon. Donna’s value has come about in part because she can advise both father and daughter about their business, not just finances. She is accountable to all–father, daughter, and the business–and is in the position of advising Bernie and Polly not only as the managers but also as the owners.

Donna should be an impartial adviser who helps her clients understand the deal from as many business angles as she can. For example, she can help Bernie understand that his confidence in Polly isn’t enough and that Polly needs to be convinced that they are ready for a big growth spurt. She can also share “war stories” about what she has seen happen as companies digest acquisitions.

Further, Donna can help Polly understand her own limitations. Not everyone is a risk taker. Polly’s management style may differ from–yet complement–her dad’s. That may be why they look at the deal differently.

An important consideration here is the impact that doubling in size will have on Wheeler Flooring and its employees. Donna can help the owners appreciate what opportunities and pitfalls such growth represents.

For example, it is likely that more top managers will be needed. Will they come from the acquisition or will they be new hires? Although Bernie and Polly work well together, are they ready to duplicate that teamwork with outsiders?

COPYRIGHT 1999 U.S. Chamber of Commerce

COPYRIGHT 2000 Gale Group

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