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How Much Money Do I Have, and Can I Use It?

Reading Time - 3 min Category -
  • Financial & Estate Planning

Jeff Chapman

Partner, Family Business & Wealth Advisor VIEW BIO

This may seem like a strange question, especially when the person asking it is considerably wealthy. I mean, don’t people know how much money they have, and don’t they have more wealth that they want to use today? Why can’t they just make the decision and cut the cheque?

Have you ever seen one of those performers who juggle a crazy assortment of things like a bowling ball, a running chainsaw, and a cat? It can be very difficult to keep the whole thing going and still know things like how much gas is left in the chainsaw, or if the cat’s been fed.

Let me explain.

This is what financial planning can be like for people with significant business and wealth. They know they have a lot of value, but with so many moving parts it can be a real challenge to understand how much “extra” cash they have at any given time. When face with decisions like, “can we buy this or make this gift”, “can we make this investment”, “will we have the cash flow we need or want in the future”, even very wealthy people can struggle to know the answers.

Most business owners and entrepreneurs have their capital tied up in their businesses and other assets and may have a minimal amount of money to use for themselves. We call this the paradox of wealth. The more you have, the more complicated things can get, and the more management it requires.

Business owners, in particular, can be caught in a perpetual cycle of waiting until their year end books are finalized, only to be 3 or 4 months into the new year and facing the same dilemma because that information is now ancient history. While accountants are great at picking a day in the past for which to tally everything up and make a report, life, business, and the unpredictable future do not provide much opportunity for neat and tidy cut-offs.

The tragedy in all of that is a lack of clarity about current and future cash availability. And it can stop people from using their wealth in the way they wish to, potentially missing out on the things for which they worked so hard to make it in the first place.

Can this problem be solved?

It can certainly be complicated, but yes, it can be done. In fact, we do this every day at Covenant. This problem can be solved through the development of financial models that integrate all of your corporate, personal , assets, liabilities, taxes, and other cash flows. Once completed, it can reveal how much cash you have today, and how much cash you can expect to have at various points in the future. It can also address many of the “what if” questions about the future. What if my business doesn’t perform as it has been? What if exchange rates or the cost of materials go up? What if I sell my business in 5 years, and what if I sell it to my children, what will that look like?

These questions can be effectively addressed through a fully developed financial model, and when based on conservative estimates, this knowledge can help you move confidently into using YOUR wealth the way you wished to.

Clarity is one of the greatest strengths from which to make decisions and plan for the future. I encourage you to gain the peace of mind that comes from having
your financial affairs clarified for you.