Build Your Business to Keep, Sell or Close for a Profit
Advisers need to think beyond super for their business clients
SYDNEY: 5 April 2013 -
In the lead up to June 30, financial advisers need to think beyond superannuation when providing advice to their business clients, according to Andrew Pavuk, author of Nobody Else’s Business.
“Simply advising business clients on superannuation is not enough,” he said, “especially in an environment of great uncertainty, where there is speculation of changes to superannuation which may reduce their current savings and future contributions.”
Mr Pavuk said business owners also face uncertainty of profits and personal income each and every year. “Advisers should therefore be encouraging business clients to conduct a yearly review of trading activities via a process of treasury planning,” he said.
Treasury planning assesses cash flow and future business requirements and identifies how excess cash requirements can be used either inside or outside the business.
“Treasury planning involves a thorough review of the business activities and future planning and assessment of performance, based on the business financial statements, as well as an assessment of both internal and external risks to the business,” Mr Pavuk said. “It will help identify excess profits which can be extracted from the business and invested.”
While extracting wealth from a business is crucial to the owner’s personal security and retirement, Mr Pavuk said many are so busy working in the business, they don’t think about their future financial security.
“This means they run the very real risk of not building up their own personal wealth. While financial advisers are ideally placed to help, some may be missing the opportunity,” he said.
Mr Pavuk said the way in which wealth is extracted from the business depends on whether the business is built to be kept, sold or closed after the owner is no longer working in it.
“Broadly speaking there are two ways business owners can build up personal wealth,” he said. “If they plan to keep or close the business, they can gradually and continuously extract wealth from it to invest elsewhere. If they plan to sell, they can keep wealth in the business and pay themselves out of capital proceeds when they sell.”
Or they could take the middle road. “Possibilities include putting money annually into superannuation and separating business assets such as business real property from the business and putting them into a superannuation fund.”
Mr Pavuk said financial advisers can play a leading role in advising which method is likely to be most appropriate and where, when and how to invest excess profits.
“A program of continuous cash withdrawal may be too much of a drain on some businesses,” he said. “It can weaken cash flow and limit growth. Conversely, building up the balance sheet can put an entire retirement plan at the mercy of market fluctuations at the time of sale. Financial advisers can help business owners run through the pros and cons of the different options.”
Mr Pavuk said a long-term cash withdrawal program can help business owners mitigate risks by:
• Protecting their personal wealth against the risk of business failure
• Enabling them to spread their assets away from the business for investment in a diversified portfolio
• Maximising their investment returns by switching between asset classes and markets when opportunities arise
Mr Pavuk said annual tax planning is an inseparable part of treasury planning.
“Over the long term a good tax strategy can have a massive impact on the wealth extraction and profitability of a business,” he said. “Financial advisers should therefore also be encouraging their business clients to visit their accountants well before the end of the financial year.”
3.5 CPD points are available via Mentor Education Group's CPDplus to financial planners who read Nobody Else's Business.
Business Owners Risk Walking Away with Nothing
SYDNEY: 5 March 2013 -
Business owners risk walking away with nothing if they don’t plan to correctly take profit from their businesses, according to Andrew Pavuk, author of Nobody Else’s Business.
“The ultimate goal of owning a business is to take profit from it while you are working in it and to walk away with money in your pocket when you no longer want to,” said Mr Pavuk.
However, while business owners expect to have financial freedom when they move on from owning their business or retire, according to Mr Pavuk many simply do not know how to put effective strategies in place to allow them to do it.
“It comes as a very unwelcome surprise to many business owners when they want to stop working in their business that is not worth what they thought it was or that it won’t continue to generate income for them when they take a more hands-off approach,” he said. “The only available option they may then have is to close the business – and if they haven’t had a strategy in place to take profit from the business along the way, this ultimately means they may walk away with nothing to show for years of hard labour.”
Nobody Else’s Business outlines the Seven Deadly Sins of being in business and offers strategies designed to help owners of businesses of all sizes reap the most rewards.
“The strategies in Nobody Else’s Business have been used by successful business owners and the book provides guidance on selecting professional advisers who can help owners build their businesses for profit,” Mr Pavuk said.
Nobody Else’s Business provides a road map that will help set business owners on the path to financial freedom – whether that ultimately means selling, closing or keeping, (but not working in) the business.
“Building a business is a rewarding achievement and it should allow business owners to live the life they want to live now and when they ultimately move on from working in the business,” Mr Pavuk said.
Are You Suffocating Your Business?
SYDNEY: 12 March 2013 -
By depriving your business of cash you may be restricting its ‘oxygen’ and therefore its ability to stay alive and thrive, according to Andrew Pavuk, author of the book, Nobody Else’s Business.
Mr Pavuk likens cash flow to oxygen because, like people, businesses can survive without profit (food) in the short-term, but not without cash (oxygen).
“If you are the owner of a business of any size, the golden rule is to not deprive your business of cash. Pay yourself last,” said Mr Pavuk. “There needs to be a manageable balance between what your business owns and what it owes and you must take a good look at how you can balance assets and liabilities in order to live the lifestyle you want to now and in the future.”
Depriving a business of oxygen is one of seven deadly sins Mr Pavuk identifies in Nobody Else’s Business and when it comes to oxygenating a business, he says cash is king. “Businesses that overestimate income, underestimate expenses and fail to forecast regular cash flow are in danger of being unprepared when the time comes to close,” he said, “Whether that closure is expected or unexpected.”
Mr Pavuk said managing regular cash flow and maintaining financial statements will enable owners to keep control of their income, prepare them for cash short-falls, streamline business operations and make sure the business does not die an untimely death.
“This means keeping on top of invoices and collecting cash from customers,” he said. “Cash owed to your business costs you money and is a liquidity risk.”
It also means knowing your numbers.
“Collecting records, and keeping an accountant onside to manage them is vital for the longevity of your business,” he said. “If you keep a close eye on where cash is entering and leaving your business you will make better business decisions.”
Mr Pavuk says that making sure businesses have the oxygen they need to survive contributes to the overall ‘financial health’ of the business. “Reviewing how the business has performed and monitoring the business progressively on an annual basis is crucial to its financial health,” he said.
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Financial Planners underestimate the importance of their own estate plans
SYDNEY: 21 March 2013 -
Financial planners are not implementing their own estate planning strategies as well as they could be, according to Andrew Pavuk of Pavuk Legal.
Mr Pavuk expresses concern for those financial planners, and other business owners, who expect their business to provide for their family in the event of their death, but have not planned how it would be kept, sold, or closed for a profit.
“It is very surprising that in a lot of these cases, it is financial planning practice owners who don’t realise the importance of their own estate planning,” he said. “Many financial planners operating their own practices fail to realise that their authorised representative agreements stipulate that in the event of their death, their Licensee may appoint their ‘own person’ to operate the financial planning practice. The Licensee is under no obligation to do the ‘right’ thing by the estate, only to ensure the interests of the clients are met.”
Hence, if the executor does not understand the value of the financial planning practice, Mr Pavuk said the estate may not receive full value on the sale of the practice.
“Preserving and maintaining the value of a business is crucial to ensure that the business will not be a strain on the family in the event of death – especially if the business is the main asset,” said Mr Pavuk.
Mr Pavuk has written a book for business owners – Nobody Else’s Business: build your business to keep, sell or close for a profit – in which he identifies some basic estate planning tips for business owners, including:
1. Keeping the business going to preserve value
2. Provisioning for:
• estate settlement costs
• tax liabilities
• personal and business liabilities
3. Preventing delays and disputes
4. Managing estate assets
Mr Pavuk said that failing to address these areas will invite unnecessary costs, potential capital losses and possibly conflict with beneficiaries.
“Getting an estate plan right will enable the wealth of the estate and non-estate assets, including the business to be preserved and handed on or sold as a going concern.”
He also said that if the business needs someone with specialist skills to operate it, a person with those skills will need to be appointed immediately.
“To operate a financial planning business, you have to be an authorised representative of a licensee,” he said. “Therefore, ideally, you should appoint a financial planner colleague to either take over the business if you die prematurely, or help your executor to run the business whilst the estate goes to probate and then distributed.”
It is also important that the business succession plan reflects the wishes or entitlements of the person who will take over the business.
Just like a medical practitioner or an accountant unless there is someone “qualified”: to operate the financial planning practice it will cease to exist as a going concern.
“Having a successor who is willing and able to take over the business is extremely important,” Mr Pavuk said.
3.5 CPD points are available via Mentor Education Group's CPDplus to financial planners, mortgage brokers and accountants who read Nobody Else's Business.
Copyright © 2013 nobody else's BUSINESS
Begin with the end - build your buisness to keep, sell or close
Inside Small Business Magazine - Autum 2014
Business owners who fail to plan for the inevitable often walk away with little or nothing to show for years of passion, dedication and very hard work. Corporate lawyer Andrew Pavuk has seen it all - and too often he saw people who didn't properly prepare for the day when they wanted to leave their business, whether that means selling, closing or simply stepping away from the day-to-day management.
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