Case Study – 1

Achieving Wealth Extraction in a Brisbane Family Business


Background

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 Dean*, the fate of their livelihoods riding on the back of the business remaining profitable. Director of q4 financial, Grant Titman 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 Grant’s insistence, these plans included shoring-up each of their individual financial futures, outside of the business.

Overview

It was clear that the family needed to know their business better. Grant 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 Grant. 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.

Grant 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 he 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. 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.

The regular meetings that Grant 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.

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, Grant addressed the need for succession planning. He 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, Grant was 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’s financial advice 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 Grant for many years and the greatest thing for me in all our dealings has been the fact that I trust him. I’ve no doubt that this has been the most important element in our success as a business. Grant looks after the numbers and I know that he will do the right thing by us. I welcome his input into major decisions in the business and my life – he’s earned an incredible level of trust when you think about it.

Working with Grant over the years has given 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. Grant 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.

*Clients’ names have been changed to respect their privacy.

The information contained in this article is general and is not intended to serve as advice. No warranty is given in relation to the accuracy or reliability of any information. Users should not act or fail to act on the basis of information contained herein. Users are encouraged to contact q4 financial professional advisers for advice concerning specific matters before making any decision.

Q4 Financial Pty Ltd ABN 99 152 799 927 is an Authorised Representative of Count Financial Limited. ‘Count’ and Count Wealth Accountants® are trading names of Count Financial Limited ABN 19 001 974 625 Australian Financial Services Licence Holder Number 22723,  a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. Count is a Professional Partner of the Financial Planning Association of Australia Limited. Count advisers are authorised representatives of Count. www.count.com.au

General advice warning:  The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.