Business Owner
4 April 2023

Live Well as a Business Owner

Here at The Wealth Designers, we meet plenty of successful business owners and they never fail to impress us. It takes a certain kind of person to walk away from a safe salary and build a business from scratch. Business owners are inspirational, bold and brave, self-motivated and driven by the desire to succeed. They prize the financial independence and flexibility that comes with running their own business, and truly embody the concept of building a life with both money and meaning.
But business owners also experience some tough challenges. That’s why we’ve put this research together – to outline the complexities and explore solutions that can hopefully help more business owners going forward. We hope it helps anyone already running a successful business, those considering starting a business, and other professionals looking to provide valuable services to this sector.

A very special thanks to our clients* who so generously shared their experiences to assist us in compiling this research.

Living well as a business owner

We understand that not everyone is able or even interested in running their own business. Some would like to, but struggle to find a way to make it profitable. But those who do successfully start and run a business discover a new way of living that they never want to come back from.
Success in business brings greater control and flexibility of time, so you can create a better work/life balance. At the same time, it also increases your capacity to earn, which can result in far greater family wealth.
Of course, there are also challenges and stresses, which grow and change with the business.
That’s why the key to getting off on the strongest foot when starting a business is setting and developing personal financial plans that manage the challenges while maximising the growth of family wealth.

The challenges faced

Our research revealed the key challenges business owners face in turning success into family wealth, through each stage of the business. These include:

New business

These are business owners who are planning to start a business or may have already started one. Business cash flow is generally variable and uncertain. Typically, the owners are very hands on and undertake the majority of the work. Revenue streams are usually largely driven by a small selection of products or services.

Established business

These businesses are characterised by relatively stable and predictable cash flows. The business has yet to reach its full earning potential and owners still desire or require growth. Financially, the owners are starting to generate cash flow in excess of that achieved as an employee.

Mature business

These business owners have reached their personal working peak. They have been able to direct excess cash flow toward their own lifestyle and build family wealth external to the business.

Challenges of New Business

The business owners we interviewed identified three common challenges, despite operating in different industries.

Challenge #1: Transitioning from employed to self-employed

All our business owners had been employed before deciding to start their own business. They each found the change and uncertainty in their family’s regular cash flow was the greatest concern to overcome. In the majority of cases, there were not only the ongoing family expenses to consider, such as rent or a mortgage and day-to-day living costs, but also additional costs attached to the business, such as stock, leases and staffing. The inability to meet these expenses was seen by most new businesses as the biggest risk to their venture and therefore their family’s wealth.

Challenge #2: Legal and administrative requirements

Our business owners all saw the administrative burden and legal obligations attached to running a business as a challenge. These were not on the radar as challenges when deciding to start a new business.

Typically, most business owners had spent a great deal of time making sure their products and services were well designed, their sales procedures were well polished, and their networks were well developed. But the majority indicated that they didn’t give much more than a passing thought to legal issues such as contracts, terms and conditions of sale, and employment agreements.

They had underestimated the time required to meet their tax and financial obligations such as bookkeeping, BAS and managing their debtors and creditors, and the subsequent affect that this had on their cash flow.

Challenge #3: Planning for the future

The next major challenge many new business owners identified was the difficulty in planning their personal lives in the future. Due to the unpredictable nature of the early cash flow, many noted they felt they could not plan holidays, because they wouldn’t be earning if they weren’t working.

Case Study
JACK AND JACINTA

Jack is in his early 30s and is married with two young children. As the family’s primary income earner, he was working for a large corporate organisation. His wife Jacinta was not working as their youngest child was only four-months-old.
Jack and Jacinta met with The Wealth Designers to explore their goals and aspirations and the financial complexities they were facing.
An entrepreneur at heart, Jack has always wanted to start his own business and has a fantastic business idea that he wants to work on full-time.
Jacinta was keen for Jack to pursue his long-term dream but was concerned about being able to pay the mortgage and afford regular living expenses while the business is in its early stages.

With their identified goals and aspirations as a focus, Jack and Jacinta worked with The Wealth Designers to put in place the plans to help them succeed. These plans included:

  • Developing a personal ‘budget’ so they know how much they will need to live on and how much of a cash buffer they will need.
  • Putting in place an appropriate savings program and banking structure now to ensure they have a buffer of money they are comfortable with for when Jack starts his business.
  • Ensuring the current benefits provided by Jacks employer through superannuation and insurance are accurately understood and adequately cater for the changes likely to occur.
  • Restructuring their loans to provide them with the most flexibility moving forward recognising that access to bank funding is likely to be restricted while the business is established.
  • Working with their accountant to ensure the correct tax structures are in place and Jack is aware of his tax liabilities including PAYG and GST, as well as their timings.
  • Developing a ‘business plan on a page’ with both Jack and Jacinta to provide a documented point of focus during the establishment phase of their business.

OUTCOME
With these strategies in place, both Jack and Jacinta had a much better understanding of their goals and their current position and felt far more comfortable for Jack to launch his dream.

With the cash buffer, once the business was up and running and had some cash flow, Jack was able to reinvest it back into the business to assist him accelerate the business’s growth. Jack and Jacinta’s loan structures gave them the flexibility to ensure their cash savings would last as long as possible while setting up the business.

With a young family, Jack also obtained income protection insurance as he was no longer covered by worker’s compensation and Jacinta was not in a position to return to work. However, Jacinta will also return to work when she can, to add to their income. Their documented business plans have helped them remain focused on the key business outcomes required during the establishment phase, minimising time and effort spent on the multitude of distractions that occur when a new business commences.

Challenges of Established Business

Having successfully navigated the ‘new business wobbles’, the owners of established businesses identified four main complexities.

Challenge #1: Improving the Business

Our business owners all wanted to improve their business, with business success viewed as the gateway to growing family wealth. Of course, the definition of “improvement” varied from owner to owner. For some it meant increasing revenue and profits, for others it meant reducing risk to the business. Strategies to achieve improvement were diverse and included things like adding or reducing product lines, improving customer experience, documenting and implementing procedures and making better use of technology.

Challenge #2: Finding the Right Staff

Finding, managing and retaining productive staff was identified as a huge challenge for our owners. Good staff were seen as integral in improving all aspects of the business, and key to enabling owners to regain work/life balance that had often been sacrificed during the new business stage.

Challenge #3: Finding Time

Most of the owners we interviewed said they felt time poor, both in terms of work and personal time.

Interestingly, “finding time” was less of a concern for those who felt they had the right staff in place and for those who had significant family members directly involved within the business.

Challenge #4: Managing Cash

After overcoming cash flow pressure during the new stage of their business, some of our business owners found themselves wondering what to do with their money. The complexities associated with BAS, GST, payroll tax, rent, debtors and creditors were often being compounded by the fact that profit on the Profit and Loss Statement didn’t always equate to cash in the bank.

While most of our business owners were earning a higher income than they would as an employee, for some the lack of transparency as to where their money is going appeared to lead to indecision in their personal circumstances. For others, it created a ‘shotgun approach’ when acquiring assets and financial products. A key characteristic of those who felt they successfully overcame this complexity was the ability to clearly differentiate between business and personal cash flow and spending.

Case Study

RICHARD AND JANE

Richard and Jane are in their mid-40s with two children. They have owned and operated a manufacturing business for seven years and employ eight staff.
Richard, who works as the business manager and Jane, who works as the part-time office manager met with The Wealth Designers to explore their goals, aspirations and the financial complexities they were facing, which included:

  • Although they are earning four times what they earned when they started, they are not saving much of their profit and feel like they were paying too much tax.
  • While they don’t feel the same financial pressure as they did when they were establishing the business, they don’t feel like they are making any progress financially, either.
  • They are running out of space in their rented warehouse.
  • Their ‘busyness’ in the business means they haven’t looked at their superannuation, their insurance or their loans since they started.
  • They feel like they need a break and would like to start travelling and experiencing new cultures overseas.

With their identified goals and aspirations as a focus, Richard and Jane worked with The Wealth Designers to put in place some plans to help them succeed. These plans included:

  • Building and working through the Richard and Jane Family Financial Model to provide them with an understanding of their current financial position, considering how it will progress over time and the opportunities now present.
  • Implementing a banking structure to provide clarity over where the ‘’expenses creep’’ is coming from, in recognition that the Profit and Loss Statement doesn’t accurately reflect the actual cash that hits Richard’s and Jane’s bank account.
  • Reviewing the couple’s loans, which identified that they were paying one to two per cent more interest because of old loan documentation and their inability to review their credit position while the business was in the establishment phase.
  • Establishing regular super contributions to reduce tax.
  • Facilitating discussions around the ideal travelling timeframes and the obstacles that needed to be overcome to achieve this goal.

OUTCOME
Having worked through the above planning process, Richard and Jane felt they were clearer about where they were spending their money and where they can rein in unnecessary spending. This provided the confidence they needed to buy and move into bigger premises and expand their business.

They were able to save thousands annually in fees and interest by restructuring their loans, insurance and superannuation and focus energy on the systems in their business that they felt needed be in place to allow them to go on a three-week trip to Europe later in the year.

Challenges of Mature Business

We interviewed owners of mature businesses who had proven business acumen. These business owners and their families were now reaping the rewards that owning a business can provide – both financially and through life choices. Alongside these life choices, these business owners now had the extra time they needed to refine their ‘bigger picture’ aspirations.

Challenge #1: Stepping Back

Our owners had spent over 10 years building their businesses. While enjoying their financial success and time, they were primarily concerned with how to step away entirely from the day-to-day business and create a successful succession, so they could explore new challenges or even retire.

Those interviewed who were in the process of putting such plans in place, or who had successfully exited, noted that the process took longer and was more complicated than they expected. Those who had sold their businesses highlighted the economic mood as the biggest external influence to their success. Those who had exited by transitioning the business to staff or family said the ability to identify, introduce and upskill their successors was the greatest challenge they faced.

Challenge #2: Knowing How Much is Enough

As well as questions around how they may exit, many interviewed were concerned with ‘how much is enough?’.

For many mature businesses, ‘enough’ related more to the lifestyle their family was accustomed to rather than how much the business was worth. A number of those who were planning towards their succession said they were surprised by how much they had underestimated the income required to fund their lifestyle.

Challenge #3: Managing the Family Wealth

Managing the family’s wealth was identified as another key challenge. The owners of mature businesses had either little in the way of assets sitting outside of their business (commercial property typically being associated with the business) or, alternatively, a spread of assets and financial products accrued as a result of a ‘shotgun approach’. Understanding the capacity of this wealth to allow them to achieve their family’s lifestyle goals was a key concern they faced.

Case Study

BILL AND JEN

Bill and Jen are in their 50s and have three adult children, as well as grandchildren. They have been running a printing business for the last 20 years. The business has been successful and has provided Bill and Jen with a strong cash, flow which continues to provide them with a good lifestyle. Over time, this cash flow has allowed them to purchase the premises from which the business runs and, more recently, allowed them to afford the mortgage required to upgrade to their dream home.

Bill and Jen met with The Wealth Designers to explore their goals and aspirations and the financial complexities they were facing. These included:

  • Having recently purchased their dream home they were concerned about the level of debt they held relative to friends of similar ages.
  • They would like to sell their business in the next five to 10 years as they feel they “cannot go on working forever.”
  • They would like to understand how they will fund their lifestyle and travel plans.
  • They would like to help their two youngest children buy their first homes and assist in providing their grandchildren with a private school education.
  • When they sell the business, they would like to make sure their loyal staff are not “’put out on the street.’’

Bill and Jen then worked with The Wealth Designers to put in place plans to help them.

These plans included:

  • Understanding the cash flow required to fund their lifestyle, as well as the progress of their investments over time and the amount of potential business sale proceeds required to ensure they are financially secure.
  • Working with Bill and Jen’s accountant to project manage the purchase of their business premises by their self-managed superannuation fund in such a way that the tax and stamp duty costs were negligible.
  • Using the cash released by the property transfer to pay off their home mortgage.
  • Increasing their super contributions to the maximum.
  • Facilitating a ‘Business Exit Roundtable Discussion’ with another business owner who had successfully exited their business.
  • Reviewing the options (and associated trade-offs) available to allow them to assist their children into their first homes.
  • Establishing a ‘multi-generation’ wealth plan for their family.

OUTCOME
Having worked through this planning process, Bill and Jen are confident that they will have enough money to do the things they want to do when they retire. They are pleased with the significant tax savings from restructuring their assets. Jen is comfortable that they can afford their grandchildren’s education and help their children into a home of their own without jeopardising their own retirement. Bill felt they were now in a stronger financial position.

Bill felt more confident about the options available to allow him to step back from the business other than a pure sale – bringing in management, passing on to his children or even progressively scaling back the business.

I’m a business owner who is keen to chat to an Adviser. What are the next steps?

Many business owners can probably relate to some of the issues raised in this paper. A financial adviser is best positioned to assist, but knowing what to do, where to go, and who to trust is difficult.

Below is a checklist of the areas that business owners might like to consider when choosing to partner with a financial adviser.

  • Does the adviser have in-depth experience and knowledge of the business and personal complexities faced by business owners?
  • Does the adviser take a central co-ordinating position to manage and oversee the many aspects influencing the financial life of business owners?
  • Does the adviser work to simplify the affairs of your family and your business, giving members the certainty they both seek for themselves and aspirations important to each other?
  • Can the adviser co-ordinate a team of professionals, including accountants, bankers, investment managers, lawyers and other relevant professionals?
  • Does the adviser offer transparent annual fees based upon value being delivered, rather than a commission-based fee for service model?
  • Does the adviser offer day-to-day, year-to-year guidance, regular reports and reviews and accountability for the advice they provide?

*All names have been changed to protect the privacy of our clients

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