Financial planning for a family business

By Jenny Brown – CEO and Founder

I get it, your business is your super, after all, you’re working really hard for yourself and your family to create a nest egg that one day you’ll be able to sell and really do what you want to do, live the life you really want to live and enjoy the fruits of your labour.

But what if it doesn’t go according to that perfect plan, what if we have GFC mark 2, it nearly happened last year with COVID. Or if the unforeseen happens and either you or your spouse becomes ill or incapacitated, what then?

Financial planning is not just for those who are wealthy, it’s for those who are building their wealth and wanting to protect themselves and their family.

Running your own small business has its ups and downs. I should know, I’ve done it now for over 28 years, and have certainly experienced both the good times and bad times.  What I’ve learnt along the way is life happens and we need to be prepared, so here are some tips that we tell our clients they should consider:

1. Cashflow – it’s king, you need to be on top of what is coming in each month and what is going out. Ensure that you are collecting 100% of your debtors in a timely manner and they don’t push out beyond 30 days.  Ensure it’s updated monthly and you are correctly forecasting out at least 90 days for those lumpy periods you might have in business.
2. Do a budget – I know everyone seriously dislikes the word, budget, but it does help to know where your money goes and it follows on from knowing your cash flow, you should know exactly what is coming in and what is going out, and by expense category, this way you can review how much you are paying for what service and look to see where you can reduce expenses to improve profit and cash flow. The same should be done for your personal household expenses and income.
3. Run your business as if you have independent shareholders – now in many small businesses we see they run a large part of their personal costs through their business, this might seem like a good idea, but it can very much muddy the waters especially if you are looking at selling part of it to a third party down the track.
4. Know your numbers – now whilst this may not seem like a typical thing for a financial planner to be telling you, it’s vitally important to understand what your EBIT, earnings per Full-Time Employee, profitability, pipeline and sales numbers are just to name a few. It helps to do this regularly and compare, month on month and year on year to see where you’re heading.
5. Pay yourself first – often we see small businesses where the owners don’t pay themselves an income, they will take money out in good times and lean on their personal mortgages in bad times, however, if you treat yourself like any of your employees you should pay yourself a regular wage and make sure you pay yourself super and schedule in 4 weeks leave a year while you’re at it!
6. Super – as I’ve mentioned, it’s vital to ensure you are paying yourself super, many small business owners neglect this as they feel their business will be their super. Besides super is the most tax-effective vehicle to own investments.  You can also look at purchasing the property you run your business from and have it owned by your SMSF, this way you are paying rent to yourself and helping grow your assets.  It’s just one strategy that can be employed, however, seeking good advice is paramount here.
7. Make sure you have adequate insurance – this includes income protection, trauma, life insurance and other general insurances. After all, if you can’t work due to sickness or injury it’s best to know you have a backup plan with the right insurance in place to pay out when you need it and don’t forget your spouse after all even if they are not in paid employment, would you need to take time away from your business if they were ill and needed care, who would look after the children, would you need paid help to come in to support you, these all need to be considered when calculating the amount of cover you need to put in place and on whom.
8. Review your lending – we suggest at least on a yearly basis as banks often have better rates for loans, overdrafts or credit cards that they don’t necessarily follow you up with. It’s worth doing that annual check to ensure you’re not paying too much and the product is the right one for you now.  Call the bank and ask for a discount – it really does work.
9. Estate planning – now this is both for your business and yourself. Ensure you have current and valid wills in place, power of attorney and Binding Death Benefit nominations for your super.  When was the last time they were reviewed and did you seek advice around this, it’s definitely worth reviewing again annually to ensure your wishes would be executed how you want them.  While you’re at it, don’t forget to put down what you want to happen with your social media and ensure your spouse or legal personal representative knows what you want.

Happy planning, remember it’s never too early or too late to seek advice from a professional you might have done really well to now and just need a few tweaks to your portfolio, or you might need a complete overhaul.  But either way, it’s best to re-visit your plan before it’s too late and review it annually to ensure it still stacks up.

Reach out and discuss your situation with the JBS Financial team.