Strategy Session: Finance & Owner Wealth Management

Discover proven, accessible approaches to thinking strategically about your business in order to make more informed decisions, with a focus on the six business drivers that will put you in a position to succeed.

By Bryan E. Pearce
Director of Strategic Business Planning
Gray, Gray & Gray, LLP

Successful entrepreneurs and business owners understand that having sufficient capital to operate and grow, together with reliable financial information generated by good systems and interpreted by a talented finance team is essential.

Business finance:

There are a number of “best practices” that leading companies follow when it comes to business finance, including:

  1. Appropriate funding

All businesses require funding to operate and grow.  Successful business leaders understand the dynamics of their businesses and model the amount of capital they will need, and the types of capital that will best satisfy their needs, and achieve an appropriate “cost of capital”.

When modeling the amount of capital required, it is important to ensure that good financial practices are being followed.  For example – with working capital management – is appropriate attention being directed to timely collection of accounts receivable?  Are inventory levels being well managed?  Have make vs. buy decisions been made which reflect the cost of plant and equipment and other costs to manufacture?  Have the comparative costs of buying vs. leasing been evaluated?  These (and similar considerations) are all-important to do first before determining the amount and sources of funding that will be required.

Generally, the capital alternatives include:

  • Working capital funding – lines of credit etc.
  • Funding for plant & equipment/capital needs – term loans, leasing etc.
  • Equity to achieve desired “Debt/Equity” ratios – share capital and retained earnings
  1. Strong finance team

As businesses grow, having a competent finance team in place is essential.  A strong finance team should operate as an integral part of management.  They should be given responsibility for:

  • understanding the business KPIs and drivers,
  • the financial modeling process,
  • recommending capital structures and sources,
  • ensuring good internal controls are in place and being followed
  • selecting and implementing financial and KPI reporting systems and ensuring accuracy of data
  • maintaining relationships and communicating with key lenders & investors
  1. Processes & internal controls

Many entrepreneurs are often concerned with adding layers of process, controls and bureaucracy for fear of making their business less agile and more “top-heavy”.  However, it is important to have in place a set of internal controls and processes that are well understood and followed in a disciplined way, in order to protect against bad information for decision-making, or worse – fraud or embezzlement.  Good processes and internal controls are one important element – together with “tone at the top” – that represent the “front line” of risk management.

  1. Financial reporting systems & data collection

A strong Finance team is important, and the ability to reliably collect data and the financial systems to extract management information from that data are the important tools that enable the finance team to properly fulfill their duties.  There are many excellent systems available today – from simple General Ledger packages to more sophisticated Enterprise Resource Planning (“ERP”), Customer Relationship Management (“CRM”) and Collaboration tools that integrate with each other.  Most of these are now available “in the cloud” on a “Software as a Service” basis that reduces the cost compared to maintaining similar systems “on premises”.  In a rapidly changing environment, such as we currently find ourselves, having timely access to reliable KPI and financial reporting information is critical to successful management.

  1. Regular communications with stakeholders

Business stakeholders include lenders, lessors, external investors and employees who may be participating in the ownership of the business.  While some minimum level of communications with such stakeholders may be specified in loan agreements (e.g. annual audited financial statements) or other documents such as annual share valuations etc., generally more frequent informal communication is important for building trusted relationships – and that trust and stakeholder understanding of current business conditions is very important when circumstances change or a quick response to a loan request (e.g. to fund an acquisition) is required.

Owner wealth management:

Part of the modeling described above considers the ratio of “Debt” to “Equity” that is prudent for the type and stage of the business.  Equity typically consists of share capital and earnings retained in the business.  Equity may be provided by the owner-operator of the business; by employees who participate in various types of employee share ownership plans and where applicable by external sources such as venture capital or private equity.

At some point in the development of their business, many owners decide to withdraw some of their wealth from the business – “taking some money off of the table”.  They may do this in an attempt to spread their risk through diversification, enjoy their success through travel, vacation properties etc. and to enable them to pursue other interests such as philanthropy or funding business interests of the next generation.

One way that many business owners are managing the wealth that they have removed from the core business(es) is using the services of a virtual family office management solution.  Virtual family offices have grown in popularity and give middle-market business owners a viable option to track and manage assets outside of the business – whether invested in charitable giving vehicles, marketable securities, private company investments or real estate properties etc.  Virtual family office managers can oversee tracking and reporting, help evaluate investment options and make recommendations, handle bill payments and periodic distributions, evaluate philanthropic requests and look after taxes and other regulatory compliance.

Careful attention to managing the funding needs of the business combined with ensuring that the principal owners of the business diversify their wealth, at the appropriate time, re the hallmarks of successful entrepreneurs.

Want more? Get in touch with Bryan Pearce, our Director of Strategic Business Planning, at (781) 407-0300 or at to explore how we can help you define your own future.

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