be the master of your $$$

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Business: Be the master of your money





Do you find it difficult to keep track of your expenses? Ask yourself this: 'Who's the boss? Me or my money?' Then you should learn how to manage cash flow effectively to be successful in your finances.
[table=200][/table]ONE of the areas of Financial Planning is cash flow and debt management. In this regard, it is important that we understand the kind of relationship we have with our money - do we have control over our money or does the money control us?

Who is the Master and who is the Servant? If we allow our cash flow and debt to manage us, then money's our master.

If we can manage our cash flow and debt effectively, then we are the master of our finances.

Let's take a look at the simple guideline in Table 1 (above).
The question now is: "How do we make man the master of his money?"

Budgeting, of course!

One of the tools in managing our cash flow and debt effectively is through budgeting. It is important that we form a habit of budgeting, and more importantly, sticking to it!

What's a Budget?

For most of us, a budget is something that restricts our spending and its main purpose is to make us save. That is why so many of us just don't get down to it.

In reality, a budget is a plan for spending our money - it does not tie us down. In fact, it liberates us! It does not tell us what we cannot spend, but rather it tells us what we can spend on without having to feel guilty about it later.

Take a look at some key components of a budget in Table 2 (above).

There are basically two main components to a budget: cash inflow (income) and cash outflow (expenses). We'd have a surplus if our income exceeds our expenses.

On the other hand, when our expenses are more than our income, this would result in a deficit. This deficit would either eat into out previous years' savings or force us into debt.

Needless to say, our goal is to ensure that our income is more than our expenses and most people will focus on increasing their income rather than controlling their expenses.

Ironically, in our pursuit of increasing our income, we "unconsciously" increase our expenses as well!

The end result is that our net cash flow position would remain relatively the same or be worse off.

How Do I Do It?

There are really no hard and fast rules but below are some simple yet effective strategies for better control over one's cash flow through proper budgeting:

List

- List down all your sources of income

- List down all expense items for the month, categorising them as either fixed or variable (do not overlook one-off lumpy expense items like road-tax and motor insurance premiums)

- Calculate the net cash flow position (total inflows minus total outflows)

Check

- Screen through the list of variable expense items and try to identify items that can be done away with or delayed.

- Do a reality check to see if the budget is realistic and take one step at a time (don't be too hard on yourself)

Track

Warning: This involves a great deal of discipline!

Depending on your preference, you could either record all your spending on a daily basis with the help of a Personal Digital Assistant (PDA) or you may stick to the conventional "555 Pocket Booklet".

If possible, try to keep the receipts for all your purchases and sort them out according to your bu dgeted item.

At the end of each week, transfer the numbers over to the Master Budget Record. Do this religiously for the next 30 days and it will become your second nature.

Review

After the 30-day period, sit down with your spouse or an adviser to review your progress by comparing "Amount Budgeted" versus "Actual Amount Spent" and determine the reasons for the difference.

Adjust your budget or spending, where necessary.

In Summary

The main thing to bear in mind is to ensure that our cash inflows are always more than our cash outflows in order to have "cash overflows" or what is commonly known as cash surplus.

Only then could we embark on the journey towards financial independence.

A journey of a thousand miles begins with the first step. So, take your first step by preparing your family budget, and more importantly, stick to it.

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Protecting your business interest

By : Yap Ming Hui

With proper planning, one can be sure that one抯 life time effort and success continue to prosper in one's absence.

WHEN we advise our clients on wealth maximisation, we always find that business interest forms a very major part of the overall wealth value. Therefore, a wealth maximisation plan must ensure your interest in business are properly protected and smoothly transferred to the heirs in its highest value.
[table=200][/table]From wealth maximisation point of view, your business interest is similar to your investment in stock market. The difference is that in stock market you invest into other people's companies, whereby in your business you invest in your own companies.

Proper planning for business interest is important. A smooth transition and succession of business interest would minimise unnecessary interruptions to business continuation and instill confidence into employees, suppliers, customers, banks and others.

With proper planning, one can be sure that one's life time effort and success continue to prosper in one's absence.

Protecting and distributing the business is not as simple as protecting assets like fixed deposits, shares accounts or unit trusts.
For such assets, you can just nominate the beneficiaries in the will and they can enjoy the benefits quite easily.

However, for an ongoing business interest, the full value is not so easily or fully realised. Getting the fair value out of the business is never easy even when there is time to plan the exit.

In the case of sudden death, it removes the most critical element from the planning process: time.

As such, successful transfer of business interest after death requires planning and consideration compared to other assets in the estate.

Types of business interest

There are three types of business ownership, namely: sole proprietorship, partnership and the corporation. These three types of business interest have different legal implications when the owner dies.

Sole proprietorship

A sole proprietorship is a business owned and operated by one person. A sole proprietorship is a business entity whose existence is not separated from the owner.

As such, the death of the business owner also means the termination of the business. The business interest is not passed immediately to the heirs. It has to go through a long and tedious process of administration or probate.

- Case study: Chong is in his early 40s and owns a successful accounting practice in Puchong with ten non-professional staff.

Even though the business monthly overhead runs are as high as RM50,000 per month, he can easily draw RM30,000 per month from the practice.

Chong is a sole proprietor. His wife stopped working so that she could spend more time with the children.

One day, a lorry knocked into Chong and he died. His death brought on tremendous financial crisis for his family.

His clients, who need accounting and taxation services within the due date, switched to the other accountants.

With less and less clients, the business income shrunk and there were difficulties paying the rentals, salaries and other business expenses.

His wife, not being an accountant, is not qualified to continue the business. She tried to sell the business to the other accountants but there was no takers.

There was no family income and his personal savings could only last the family for 10 months.

What could Chong have done to avoid this unfortunate mess?

Alternatives for a sole proprietorship business

When the sole proprietor dies, the heirs have one of the following alternatives to dispose off the business interest:

(a) The estate administrator or executor liquidates the business
Unless authorised by the will or court order, the administrator or executor must wind up and liquidate the business as soon as possible. Forced liquidation usually results in severe loss of business value.

(b) The executor continues the business until it can be sold as going concern

The proprietor's will gives the power to executor to continue the business and exempt him from personal liabilities for actions taken during this period.

However, the executor may be liable for any losses caused by his negligence or imprudence.

A few difficulties are foreseeable during this period. Firstly, the executor may not be experienced to run the business.

Secondly, after settling the outstanding estate liabilities, administration expense and taxes, the executor may not have sufficient working capital to continue the business.

To successfully sell off the business as going concern, the executor has to overcome the above two major challenges.

(c) The heirs inherit the business through the sole proprietor's will

In the proprietor's will, the business can be transferred to the heirs as a gift. However, the heirs may not have sufficient knowledge or ability to run the business profitably.

If they are not successful in running the business, they may dissipate their other estate inheritance in order to save the business.

As such, the business gift may turn out to be a liability rather than a asset for the heirs.

(d) Sale of the business by a agreement prior to the death of the sole proprietor

Before his death, the proprietor can offer the sale of his business to his employee or an interested outsider. Under this alternative, the potential buyer enters into a contractual agreement with the proprietor to buy the business at an agreed price.

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