Where Is All The Money Going Series: Chapter 9 - Is Your Business Actually Building Family Wealth?
Written By: Melissa Cunliffe (CA)
After all the years of work, what are you really building?
A family business can provide a very good income. It can pay the bills, fund the mortgage, buy the cars, support school fees and provide a comfortable lifestyle — and still leave the owners wondering: what have we actually built?
Income and wealth are not the same thing. A business can generate a strong income for many years without necessarily creating financial independence, substantial investments, low debt, retirement security, transferable business value or meaningful wealth outside the business.
| Is our business creating wealth for our family — or simply funding our current lifestyle? |
Income Pays for Today
Income keeps life moving. Wealth is what you have built and retained over time: business equity, property, superannuation, investments, cash and debt that has been repaid. Strong family businesses focus on producing good income today while steadily building assets and options for tomorrow.
High Income Can Hide Low Wealth
A family can enjoy high personal drawings, expensive vehicles, holidays and a large home while also carrying high debt, limited superannuation, few investments, little cash outside the business and almost all wealth tied to the business itself. Lifestyle alone does not tell you whether wealth is being built.
Net Wealth Tells a Bigger Story
A useful starting point is to understand family net wealth: what you own less what you owe. The purpose is not to obsess over one number; it is to understand direction. Is the family's net wealth increasing over time?
Your Business May Be Your Biggest Asset
For many family business owners, the business is one of the family's most valuable assets. Yet surprisingly few owners know what it may actually be worth. If the business is expected to fund retirement, succession, a sale or inheritance, its value matters enormously.
Are You Building an Asset — or Buying Yourself a Job?
If the business cannot function without you, then part of what you own may actually be your own employment. Ask what would happen to customers, staff, margins, sales, decisions and profit if you stopped working tomorrow.
Business Value Is Built Before the Sale
Reducing owner dependency, building management, improving margins, diversifying customers, cleaning up reporting and documenting systems all take time. Business-value growth should be an ongoing prosperity strategy, not an event that begins when the owner decides to retire.
Wealth Outside the Business Matters Too
Even a very valuable business creates concentration risk if almost all family wealth depends on it. Diversifying some wealth outside the trading business can increase resilience and options.
Give the Surplus Cash a Job
If the business produces surplus cash, what happens to it? Does it sit in the bank, disappear into drawings, pay down debt, get invested, fund property, go into superannuation or support growth? There may be good reasons for any of these choices, but the key word is choice.
Work Backwards From the Future
Suppose a couple wants to retire in ten years with $150,000 per year of retirement income. How much capital might be needed? What will super look like? Will the business be sold? Will property be retained? Will debt remain? Does the expected business sale value make sense? Now retirement becomes a plan, not a hope.
Don't Count the Business Twice
Sometimes owners mentally treat the business as both the thing that will fund retirement and the thing they will give to the children. That may be difficult to achieve. If Mum and Dad need sale proceeds to retire but also want the next generation to receive the business without paying full value, there may be a funding gap.
Debt Reduction Is Wealth Creation Too
Reducing debt may not create a shiny new asset, but it increases equity, lowers interest, reduces repayments, lowers risk and creates future flexibility. Prosperity is not always about adding more. Sometimes it is about owing less.
Measure Progress Annually
At least once a year, look at business value, property, investments, superannuation, cash and other significant assets, then subtract business, investment and personal debt. Over time, the direction matters.
Health, Wealth & Family
Imagine the family has substantial wealth but the owners are working 80 hours a week and their health is suffering. Or the business is extremely profitable but succession disputes are damaging the family. Is that prosperity? Not in the way we think about it.
Ask Yourself
Do you know your approximate family net wealth?
Is it increasing over time?
How much of it is tied up in the business?
Do you know approximately what the business is worth?
What would happen to that value if you stopped working there?
Are you deliberately building assets outside the business?
Do you have sufficient liquidity?
Is superannuation part of the long-term strategy?
Are you relying entirely on selling the business to fund retirement?
If the business were never sold, could you still retire comfortably?
Are your assets appropriately protected?
Does your wealth strategy fit with succession?
Do you know how much is actually enough for the future you want?
| If you looked back ten years from now, what would you want all the work you're doing today to have created for your family? |
3P'S FUTURE PROSPERITY INSIGHT
PRESERVE
Building wealth starts with retaining value through profitable operations, strong cash flow, tax efficiency, debt management and good financial information.
PROTECT
As wealth accumulates, protection matters: structures, asset exposure, debt, guarantees, insurance, estate planning, succession and diversification.
PROSPER
Prosperity is where the value created by the business begins producing genuine choice: invest, reduce debt, work less, retire, grow, help the next generation, retain assets or build a lasting legacy.
| Instead of asking only 'How much did we make this year?', ask: How much stronger did our family's financial position become this year — and are we building the future we actually want? |
Book a complimentary Future Prosperity Meeting to explore where your family's wealth is today, where it's heading, and what actions could strengthen your long-term financial future.
Disclaimer
This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.
Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder
Liability limited by a scheme approved under professional standards legislation.
