Achieving wealth extraction in a Brisbane family business
Our client is a very established business. Family-owned, the niche manufacturer located in Brisbane, employs 15 team members. As is the case with many family owned operations, the business employs the entire family, Tracey, Phil and their sons Michael and Dave, the fate of their livelihoods riding on the back of the business remaining profitable.
q4 financial began working with the family in 1995. At that time, the family had bought-out a business partner and were making plans for the future. At our insistence, these plans included shoring-up each of their individual financial futures, outside of the business.
Our overview
It was clear that the family needed to know their business better. We recognised that the first step was understanding their cashflow, and taking control of it.
The family needed to identify where they made money, what built profits, and what drained them. With this information, they could implement changes, plan more effectively and manage their business more profitably. Importantly, the family’s assets needed to be protected, debt needed to be paid down and wealth needed to be accumulated so that it was available to be extracted by the family when they needed it.
Our process
During the first three years, q4 financial implemented systems that would keep the family close to the numbers. This involved regular meetings with our team.
The purpose was to carefully monitor profitability so they could develop a clear understanding of where the business was making profits and what needed to change.
We worked with the family to help them to understand their cashflow, how profits were spent and how they were distributed.
The cashflow disciplines and profit management we implemented were the early steps for achieving wealth-building goals that would fund the family members’ lifestyles outside of the business. Systems were paramount. While accurate reporting was important, more so it needed to be meaningful to the business owners. It needed to make sense and provide a clear picture of the financial performance of the business and provide a roadmap for achieving outcomes. Monitoring, and in turn understanding the numbers, allowed a newfound agility for the business owners.
The regular meetings that the q4 team imposed upon the family addressed all aspects of the business – good and not so good. Knowledge built confidence so that the business owners proactively dealt with unprofitable areas and pursued more lucrative endeavours.
They were able to attend to problems quickly as they arose, rather than six months after the fact. They also became proficient in identifying trends so that they could act on opportunities and mitigate risks and defuse challenges. Staff capabilities were assessed and changes were made that allowed the owners to step back from front line sales so that they could work on the business.
Planning was based on accurate records. They could ‘see’ results, and the family began to feel a sense of being in control. With cash flow and core financial management shaping up, the family was in a position to plan for the future.
This involved developing a wealth accumulation and debt reduction plan for the next 20 years. During this planning process, we addressed the need for succession planning.
We asked the family how the owners, Tracey and Phil at that stage, were going to extract themselves from the business and enjoy the fruits of their hard work.
Mindful that many family-owned businesses fondly refer to their business as their ‘superannuation’ but in reality, find themselves ‘stuck’ with a business they can’t sell, we were keen to implement a plan well in advance of Tracey and Phil’s retirement. The succession plan took eight years to work through and implement.
It involved gradually bringing Michael and Dean into management roles and implementing a transition period that would see their parents gradually relinquish their roles as the key decision makers. q4 financial’s wealth management team also worked with family members to implement an investment and superannuation strategy to ensure the owners extracted wealth from the business every year.
Outcomes so far
After a very short period of time Tracey and Phil noticed a substantial uplift in overall assets and this has continued to be part of the business’s operating model today. Importantly, the family built a sustainable investment model that is at arm’s-length from the business. That is, while the business is sound, regardless of the ups and downs, they are no longer 100% dependent upon it being profitable to support all of their livelihoods. Tracey and Phil successfully transitioned out of the business with no impact felt on the bottom line profit.
Their sons Michael and Dean have taken over the reins entirely and now run the business. Their parents are enjoying their retirement.
Importantly, the entire family can rest assured that implementing well-considered structures and financial management systems has very likely avoided personal financial ruin for each of them. By making the shift from them funding the business with their private family assets to generating and extracting wealth from it, the business now funds them, and will do so into the future.
This is what Phil had to say…
We’ve worked with q4 financial for many years and the greatest thing for me in all our dealings has been the fact that I trust them. I’ve no doubt that this has been the most important element in our success as a business.
They look after the numbers and I know that they will do the right thing by us. I welcome their input into major decisions in the business and my life – they’ve earned an incredible level of trust when you think about it. Working with q4 financial over the years gave me the chance to pull my business apart and see how it all ticked. I’m not a numbers person, but it’s been interesting to understand the business better.
Lots of people don’t see an accountant until they’re broke or nearly broke. The q4 team showed us the changes we needed to make so that we wouldn’t go broke. I know which relationship I’d rather have with my accountant. I would definitely recommend q4 financial; in fact, I have done.
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