Basic financial foundations every successful CEO should have

As a financial adviser, I suggest that every individual builds wealth using five basic financial foundations.
For CEOs and business leaders, it is not just themselves and their families to think of, there is also a company.

These five financial foundations will help both your personal wealth and the business you lead grow strongly and sustainably.

Separating business and personal affairs

Work and leisure time, activities and connections are blurred like never before. However, when it comes to finances, and tax in particular, those distinctions remain important.

Pay particular attention to things like:

• Depreciation of home office furniture, equipment, electronics and so on.
• Depreciation of home office furniture, equipment, electronics and so on.
• Expenses incurred while working at home that aren’t supplied or reimbursed by the company: For example, utilities, mobile phone, stationery, parking and printing.
• Expenses incurred while working at home that aren’t supplied or reimbursed by the company: For example, utilities, mobile phone, stationery, parking and printing.
• Education and professional development: Job-specific training, professional and industry memberships and relevant subscriptions.
• Advisers: Accounting, financial advice, legal and managerial services.
• Maintaining separation of business and personal affairs not only meets your compliance obligations, but also has tax benefits (such as claiming company GST credits) and avoids you being left personally out of pocket for company expenses.

Avoiding common mistakes

Common mistakes are common because people keep making them. Lots of people. Don’t become one of them! Avoid, for example:

• Poor cash flow: Ironically, those with lean revenues perhaps appreciate that more than those with massive capital inflows. Largesse often breeds complacency: both for companies and high-income earners.
• Underpaying yourself: Business owners often don’t pay themselves properly, income or superannuation. "The business is my retirement plan!" they claim. All good if it becomes the next Google or Facebook. But if it fails? They’re left with nothing, or devalued. Extract value while you can.
• Legal quagmires: Especially pertinent when relationships breakdown: marriages or business partnerships. And disputes can erupt among beneficiaries/relatives when a business owner dies without proper estate planning. These situations inevitably affect the business’s value and future as a going concern.

Mitigating your risks

Risk mitigation is just as important personally as it is in business. Conduct a financial risk assessment to identify your vulnerabilities – everything from natural disasters destroying assets to ill health or redundancy unexpectedly interrupting your earning capacity.

• Examine what protections you have over your assets and your ability to generate income. Are your insurances – property, life and disability, income protection, professional indemnity and so on – current? Do they offer enough cover and the best value? Do you have an emergency cash fund to draw on?
• Examine what protections you have over your assets and your ability to generate income. Are your insurances – property, life and disability, income protection, professional indemnity and so on – current? Do they offer enough cover and the best value? Do you have an emergency cash fund to draw on?
• Examine what protections you have over your assets and your ability to generate income. Are your insurances – property, life and disability, income protection, professional indemnity and so on – current? Do they offer enough cover and the best value? Do you have an emergency cash fund to draw on?
• Establish contingency plans. What if you can’t physically get to work? How could you afford retirement if the company collapsed? Or your key person can’t work? How will your family cope should you or our business partner die prematurely or suffer long-term illness/disability?

Planning your exit

Surprising numbers of business leaders have no exit plan. Yet a smooth transition for both you and the business takes time and effort to implement. Whether you lead a public company, private enterprise or your own business will influence how this process is managed, including:

• When do you communicate your departure – to employees, investors, suppliers, and customers? How should this be staged?
• Who will succeed you as CEO?
• What knowledge gaps does the business need to fill once you depart?
• What, if any, stock options do you have? When can/should you exercise them to maximise value and minimise tax?
• Will you retire? How will you fund retirement?
• Will you take another role? How will that impact your earnings, reputation, investments or even your quality of life? Will that move adversely affect the company you’re leaving?
• Your own plans should be developed in parallel with the business’s, ensuring an orderly transition that doesn’t adversely affect the company’s value and prospects, nor your professional reputation.

Looking after yourself

While running the company and ensuring everyone else has everything they need, it’s easy to overlook your own wellbeing: physical, mental and financial. Your health, sleep quality, financial stresses and mental clarity directly affect not just you but the company too in myriad ways:

• Decision-making capabilities
• Attendance and performance
• Cognitive functions – memory, reasoning, attention to detail, concentration
• Body language/personal image
• Impulse control
• Workplace culture
• Healthcare costs

Looking after yourself directly improves your ability to create value, innovate, manage risks and maximise opportunities.

Remember: A company has a board, staff and advisers on hand to protect its future – your future, and that of your family, is all up to you.

Helen Baker is a licensed Australian financial adviser and author of On Your Own Two Feet: Steady Steps to Women’s Financial Independence and On Your Own Two Feet Divorce: Your Survive and Thrive Financial Guide. Note this is general advice only and you should seek advice specific to your circumstances.