Money – Make It, Keep It, Protect It!
Money - We need to make, we need to keep it, we need to ensure it ends up in the right hands when we die.
We need to make, we need to keep it, we need to ensure it ends up in the right hands when we die.
Businesses have a life cycle. Have a think where you are in your life cycle as I go through the stages below:
The Seed
You have a thought or an idea. You need to work through the idea, is it a viable business, look at our own abilities, the readiness of the market you wish to enter and, of course, the financial foundation (the money!!). Having the right people around you here is paramount – the key word there was “right” maybe the dude at the pub isn’t the right person. Having a sounding board such as an accountant/adviser can give you insights into what they have seen work, not work so you aren’t wasting time or money or setting your business up for failure.
Start-Up
You are ready to launch. During his phase, sales could be low, but slowly increasing. Money is going out faster than coming in. Their major focus is on marketing, growing your customer base, working through business efficiencies, ensuring you have those policies, procedures and processes down pat. Cash is likely to be tight. My suggestion for all startups is that they have 2-3 months of expenses as cash in the bank at all times. This gives them the buffer to work through the ups and downs of the cash flow in the initial period of their business. Adaptability is key here – moving quickly if something is or isn’t working to therefore push the business to where money is being made. Sometimes you just have to have a go because that is what businesses are made of.
Growth
Revenues and customers are increasing with many new opportunities and issues, profits are strong, but competition is surfacing. Focusing on your point of differentiation is what matters now. You need to work that differentiation, look at new opportunities, synergies, having fun – how do you grow? Buy another business, undertake a new product/service, employ a star. There are lots of ways, you need to talk with your advisers and keep pushing the business forward but at the same time imbedding those processes and improving efficiencies.
Established
Sales growth is not explosive, but manageable, business life has become more routine. Be careful here – the business can start to plod along, your employees plod along, you plod along. Some business owners, get stuck in the office doing not what they want to do or are good at. Is there still passion in the business? If you are in this phase, review your passion, get back to what you are good at – what got you here to start with?
From being established, you can expand or you can sit in the maturity part of the cycle.
Maturity means that year on year sales and profits tend to be stable, however competition remains fierce
There is a point, though, that you’ll need to make a call, stay in maturity which, normally, then leads to decline due to the competition, expand, sell or close up the shop.
If you are going to sell, it takes time. Realistically, it is a 5 year process. You need to not be the person that the business relies on. If it does, then what you are going to get for your business is less than what it is worth. That’s because your business is you. This is a huge opportunity to maximise the Money from the business – all that blood, sweat and tears you have endured since you planted that little seed. There is a process map that business owners go through over this 5 years to ensure that they maximise value. Again, your adviser is your teacher here.
So what life cycle are you?
Can you identify something you should do now with/for your business?
Through the business life cycle you’ve made the money. How about keeping it through that cycle and beyond.
This is where structuring your business is really important. Is it a sole trader, a company, a trust. These structures all have different advantages and disadvantages. The key to choosing the right structure is around:
- Protection – you don’t want to lose your personal assets if something goes pear-shaped in your business
- Family – what is your family structure – partner, kids etc. There are tax advantages that can be utilised with family members
- Risk – is the business a risky business ie asbestos removal may be classified as risky
- Succession planning – if you want to pass it down to family members or maybe employees
- Saleability – if you are selling the business, then some purchasers need a certain structure to be able to buy into ie IP entities are normally companies so that the purchaser can buy directly into the company without affecting the contracts in place with the IP entity.
Let me ask you – do you think you are in the right structure?
Keeping the money is also about building wealth outside of the business. I ask many business owners when I sit down with them about life after business and how they are going to fund retirement. The majority says, my business is my super. What happens if that doesn’t happen? We all hear the stories and have even seen major companies go down. Extracting money out of your business efficiently and by using tax effective strategies is a way of building that wealth outside – that might be property, shares, other business ventures, charity work. Ensuring not all eggs are in one basket is the old tale.
We’ve made it, we’ve kept it, now what.
Our life spans are increasing so there is (touch wood) a long time until we die. Depending upon how much you go Skiing – spending the kids inheritance will depend upon what is left. How do you protect what you’ve earnt doesn’t get wasted – that is through your will.
There are 2 main things here:
The power of attorney, which is a document that can be used if you are alive for people to make financial and medical decisions on your behalf if you can’t ie in your comatosied in hospital.
The will – there are 2 types. The I love you will. The I love you will is that you die and your partner gets everything and they aren’t around then it goes to the children.
The second type is what we call a will with testamentary trusts. What this means is that on your death, whatever you hold as assets transfers into a trust. This trust, then holds the assets for the beneficiaries being your spouse, children etc. What is the advantage:
- No-one owns anything
- If your spouse remarries, the new partner cannot get to the assets unless your spouse gives it to them.
- If your children get married, their partner cannot get to the assets
- If one of your beneficiaries is a drug addict, gambler, is made bankrupt – no-one can get to the assets
So your hard work is protected for the betterment of the future of your spouse and children.
Just remember that your will deals with assets you own. What do you own personally – maybe a car, bank account, life insurance, shares in a company etc. Your home, depending upon how it is owned may go direct to your spouse. Your superannuation is dealt with within the fund rules, not your will, your companies/trusts could be dealt with by their constitutions and deeds.
If you don’t have a will – then effectively the public trustee steps in and the assets are divided up as follows:
- Spouse 150k plus the household chattels
- The balance is then 1/3 for the spouse and the balance divided between the children
Imagine if you are in business and what that looks like?
Remember Cash is King!!
