Where Is All The Money Going Series: Chapter 10 - What If Things Get Tough?
Written by: Melissa Cunliffe (CA)
One difficult year should not undo twenty good ones
Every business has good years, and every business eventually has harder ones. A major customer leaves. Interest rates rise. A key employee resigns. Equipment fails. A supplier problem stops production. A family member becomes ill. Sometimes several things happen at once.
The strongest family businesses are not the ones that somehow avoid every setback. They are the ones that have enough financial strength, flexibility and planning to absorb setbacks without losing everything they have spent years building.
| Protecting a family business is about more than legal structures. It is also about resilience. |
Good Years Can Hide Weaknesses
Strong sales can mask weak margins, excessive debt, poor debtor collection, high owner drawings, insufficient cash reserves, overreliance on one customer, poor systems, owner dependency or inadequate insurance. The best time to strengthen a business is often while things are going well.
Start With the 'What If?' Questions
What if revenue falls by 20%?
What if your largest customer disappears?
What if one owner cannot work for six months?
What if a key employee resigns?
What if interest rates increase?
What if stock cannot be sourced?
What if equipment fails?
What if a legal or cyber event disrupts the business?
What if a major debtor does not pay?
What if family circumstances change?
The objective is not to predict which event will happen. It is to understand which events could seriously hurt the business and decide what can be done now to reduce the impact.
How Much Cash Buffer Does the Business Need?
Cash creates time. It can help cover wages, rent, loan repayments, suppliers, tax and essential operating costs while the business adapts. There is no universal right reserve; the appropriate level depends on revenue stability, seasonality, customer concentration, debt, access to finance, fixed costs and risk tolerance.
Customer and Supplier Dependence
A major customer or supplier may be extremely valuable and still create risk. The issue is dependency. If one relationship disappearing could seriously damage the business, it deserves attention.
What Happens If the Owner Cannot Work?
In many family businesses, the owner is chief salesperson, technical expert, relationship manager, decision-maker, financier and strategist all at once. Ask whether customers, staff, bank relationships, passwords, payroll and key decisions could continue if the owner was unavailable tomorrow.
Systems Are a Form of Protection
Documented processes reduce reliance on individual people. Payroll, customer onboarding, debtor collection, supplier ordering, banking, quoting, job management, month-end reporting and compliance calendars are all part of business resilience.
Insurance Is Part of the Picture — But Not the Whole Picture
Insurance can play an important role, but the bigger question is what financial event you are trying to protect against and whether the current arrangements would actually solve the problem. Insurance should connect to debt, succession, ownership and business continuity.
Are Your Family Assets Exposed?
As wealth accumulates, understand whether valuable family assets are unnecessarily exposed to trading risk through guarantees, security arrangements or structures. Asset protection is not a magic shield, but awareness and appropriate professional advice matter.
Family Risk Is Business Risk Too
Marriage breakdowns, sibling disagreements, death, different expectations between children, parents wanting to retire and a next generation that is not ready can all affect the business as significantly as a lost customer. Protect also means protecting family relationships and clarity.
The 'Bus Test'
If a key owner unexpectedly died or became unable to work tomorrow, what happens on Monday morning? Who runs the business, talks to staff and the bank, approves payments, manages payroll, controls the entities, deals with debt and supports the family?
Scenario Planning Does Not Need to Be Complicated
Sales fall 20%
Largest customer leaves
Owner cannot work
Finance costs increase
Major debtor fails
Critical equipment fails
The point is not precision. It is preparation.
Protecting Does Not Mean Becoming Afraid to Act
Business requires risk. The objective of Protect is not to eliminate every risk. It is to understand the risk, decide whether it is worth taking and avoid exposing more than necessary.
Ask Yourself
How long could the business operate if revenue suddenly dropped?
Do you have a deliberate cash-reserve target?
How dependent are you on your largest customer and supplier?
What happens if the owner cannot work for six months?
Does somebody else understand every critical part of the business?
Are key processes documented?
Do you know what personal guarantees you have given?
Do you know which family assets are exposed?
Is your insurance strategy linked to actual financial risks?
Could the business absorb a major bad debt?
Is your estate planning current?
Does the succession plan still work if something happens earlier than expected?
Do you know your break-even point?
What costs could you reduce quickly if conditions changed?
| If something unexpected happened tomorrow, would your family business have options — or would it immediately be under pressure? |
3P'S FUTURE PROSPERITY INSIGHT
PRESERVE
Resilience starts with a strong financial foundation: healthy margins, reliable cash flow, tax under control, manageable debt and good information.
PROTECT
Protect means understanding vulnerabilities across assets, debt, people, customers, suppliers, systems, ownership, family relationships, succession and estate planning.
PROSPER
A resilient business can pursue opportunities with greater confidence. Protect is not a brake on prosperity; it is what makes sustainable prosperity possible.
| Instead of asking 'What are the chances something will go wrong?', ask: If something does go wrong, have we built the business and family position strongly enough to handle it? |
Schedule a meeting today and take the first step toward protecting everything you've worked so hard to build.
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.
