Where Is All The Money Going Series: Chapter 12 - From 'Where Is All the Money Going?' to Future Prosperity
Written by: Melissa Cunliffe (CA)
Knowing the answer is only valuable if you do something with it
We started this book with a question we hear from successful family business owners all the time: 'The business is profitable. So where is all the money going?'
It sounds like a cash-flow question. Sometimes it is. But the answer can be much bigger. The money may be going into stock, debtors, WIP, equipment, property, debt repayments, tax, employees, owner drawings, business growth, superannuation, investments or building equity and wealth.
Sometimes the money is being used very well. Sometimes it is disappearing through poor margins, inefficient processes or uncontrolled spending. Sometimes the business is profitable but growing too quickly. Sometimes the family is taking too much from it. Sometimes too little. And sometimes nothing is fundamentally wrong — the owners simply have never had the numbers explained in a way that connects profit, cash, business value and family wealth.
| Is everything we are doing in this business actually taking our family where we want to go? |
Your Business Is Part of Something Bigger
For a family business owner, the business may be your income, largest investment, family's employer, retirement plan, children's opportunity, greatest source of risk, largest asset and legacy — sometimes all at once. That is why advice cannot stop at the tax return.
Compliance Gives Us the Foundation
Before we can make good decisions, we need reliable Facts: what the business earned, owns and owes; what tax is payable; how much cash it generated; what has happened to debt; what the owners withdrew; and how the financial position changed. Compliance is not separate from advisory. It is the foundation underneath it.
GOALS → FACTS → OBSTACLES → RECOMMENDATIONS → DECISIONS
The Future Prosperity conversation begins with what the family wants, establishes where they are today, identifies what is standing in the way, considers the best moves available, and then turns recommendations into decisions with responsibility and timeframes.
STEP 1 — GOALS: What Are We Actually Trying to Achieve?
Grow? Become more profitable without becoming bigger? Reduce debt? Get Mum and Dad out of the business by 60? Bring the children in? Sell? Buy the property the business operates from? Work less? All are valid goals, but they lead to different strategies.
Health. Wealth. Family.
Health asks whether the business is sustainable for the people running it. Wealth asks what the business is actually creating. Family asks who is involved, what succession looks like and what the family is ultimately trying to leave behind. Sometimes the financially optimal decision is not the best decision for the family.
STEP 2 — FACTS: Where Are We Really?
We need to understand turnover, margin, underlying profit, cash flow, debtors, stock or WIP, debt, tax, owner remuneration, business value and family net wealth. But we also need structure, asset ownership, guarantees, insurance, superannuation, investments, estate planning, succession, systems, management capability and the issues keeping owners awake at night.
STEP 3 — OBSTACLES: What Is Standing Between Here and There?
Perhaps the goal is retirement but the business depends completely on the owner. Perhaps the goal is wealth creation but all available cash is servicing debt. Perhaps the goal is growth but working capital is the constraint. Perhaps the goal is bringing in children but no one has discussed ownership or roles. Good advisory starts by identifying the actual obstacle.
| Solve the right problem. |
STEP 4 — RECOMMENDATIONS: What Could We Do Differently?
Depending on the circumstances, recommendations might involve pricing, margins, debtor management, working capital, debt reduction, refinancing, restructuring, tax planning, owner remuneration, reporting, cash reserves, assets, insurance, management capability, business value, investment, superannuation, succession, estate planning or specialist advice.
The recommendation is not the goal. It is the bridge between where you are and where you want to go.
STEP 5 — DECISIONS: What Are We Actually Going to Do?
Advice that sits in a folder achieves very little. A recommendation needs to become a measurable decision with an owner, a timeframe and a review date.
| Good advice should not finish with a conversation. It should finish with a decision and a clear next step. |
Then We Review
The process is not intended to be completed once and forgotten. The business changes. The family changes. The goals change. We review what happened, what was implemented, what worked, what did not and what comes next.
The Three P's Are Not Separate
Improving margins may Preserve more cash. That cash may reduce debt and Protect the business. Lower debt may then create capacity to invest and Prosper. One decision can move through all three.
The Real Outcome Is Choice
Choice to grow or not grow. Retire or continue working. Sell or pass the business to the next generation. Buy property. Invest. Reduce debt. Travel. Work less. Help children. Support the community. Take an opportunity. Walk away from a bad one. Financial strength creates options, and options create freedom.
A Simple Future Prosperity Scorecard
HEALTH
Is the business sustainable for the people running it?
Are owners working the hours they actually want?
Can they take meaningful time away?
Is business pressure improving or worsening?
WEALTH
Has family net wealth increased?
Has debt reduced?
Has business value improved?
Are assets being built outside the trading business?
Is the family moving closer to financial independence?
FAMILY
Are family goals aligned?
Is succession being discussed?
Are roles clear?
Are ownership expectations understood?
Are estate arrangements current?
Then assess: Are we keeping enough of what we create? Are we adequately protecting what we have built? Are we deliberately building what comes next?
Your Next 12 Months
What are the three most important things we want to achieve?
What are the Facts today?
What are the biggest Obstacles?
What are our Recommendations?
What Decisions are we making?
Who is doing what, and by when?
That is your Future Prosperity action plan. It does not need to be 100 pages. It needs to be understood and used.
| The question we want you to stop asking alone is 'Where is all the money going?' The better question is: Where do we want the money to go? |
You Should Know Why You Are Working This Hard
Family business can be enormously rewarding, but it can also demand a lot. Early mornings. Late nights. Employees. Customers. Cash flow. Tax. Debt. Risk. Responsibility. Years pass quickly. Occasionally, stop and ask: What is all of this actually for?
Your Business Should Help Build Your Future
Maybe your goal is a larger business. Maybe a smaller one. More wealth. Less debt. Succession. Retirement. Opportunities for your children. Or enough strength that you no longer worry every time something goes wrong. Whatever Future Prosperity looks like for your family, the business should help move you towards it.
3P'S FUTURE PROSPERITY INSIGHT
PRESERVE
Understand what the business creates. Know where the money goes. Strengthen profitability. Manage cash. Plan tax. Control working capital. Make deliberate capital decisions. Keep more of what you have worked hard to create.
PROTECT
Understand what could put the business and family at risk. Review structures, debt, guarantees, insurance, people, systems, succession, estate planning and family relationships. Protect what you have spent years building.
PROSPER
Know what all the hard work is intended to achieve. Build business value and family wealth. Create options. Plan succession and retirement. Reduce owner dependency. Build the future you actually want.
| Is the money our business creates being used deliberately to Preserve what we have, Protect what we've built, and help our family Prosper into the future? |
Your Next Step
You do not need to fix everything at once. Start by identifying one thing to Preserve, one thing to Protect and one thing that will help you Prosper. Then decide what happens next.
Future Prosperity is not created by one tax strategy, one investment, one structure or one great year. It is created through a series of good decisions, made deliberately, over time.
Book your meeting now and take the first step towards greater clarity, confidence and control.
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.
