High Net Worth Individuals or Families (HNWI or HNWF): Are you asset-rich but cash flow poor?

25233082 - CASH FLOW MANAGEMENT PAGE

Almost every business manager or owner is taught to build their productive and value-holding assets in times of excess cash flow. This is because these assets generally assist in times when cash flow is hard to come by. This holds even truer for people/businesses who are still building both their cash flow and asset base. This indeed is some of the advice that I have personally given to all my High Income and High Net Worth clients at some point or other. I have always made an effort especially with business owners so that they can weather cash flow deficiencies better in the future. I often advocate that this be done either in the entity where operations are in effect, a separate entity or the business owner’s personal financial profile. While the type and profile of assets that are most desirable are topics for another blog entry it is vital that one puts oneself in a position to take advantage of this once they are in need of some cash flow injection.

  • First let us explore why applying this strategy to cash flow management is desirable:
    Unplanned Cash Flow shocks can be weathered much more easily. Cash Flow shocks can be in the form of political, economic, social, technological, environmental, legal and “Acts of God” shocks. It can also be due to inadequate cash flow planning and management and other company/person-specific risks. Some lie in one’s circle of influence and others not. Regardless of what they are and how they came about having a better plan for when they arise does reduce your overall risk;
  • To grow a new or existing business income by employing more targeted marketing, sales, increasing staff compliment, training and client relationship activities to mention a few you need good solid cash flow;
  • The assets can be used as security or collateral for loans taken by the business. These loans then can “recapitalise” business in a time when cash flow is vital;
  • It can also affect effective exit actions for the owners of the businesses or assets and their family and/or trusts;
  • It is also great for diversifying a business’ investment portfolio. If done properly this can reduce the exposure to external shocks and maintain asset and cash generative value;
  • The cash flow can also be used to sustain oneself while building or expanding a business amongst other uses and;
  • Last but not least, having more than one source of cash flow (businesses) and a glut of investment opportunities means that your approach to cash flow management must be very formalised and have built-in rules that protect you against unnecessary and preventable cash flow shocks.

On the other hand a lot of businesses initially grow by mostly employing only the cash flow they generate themselves or from “friendly” sources such as family, friends and other business associates until they can generate enough cash flow by themselves. This in effect fosters a business model that excludes external, formal sources of cash such as banks and other funders from being a key proactive component of sourcing cash flow. Examples of this are businesses with owners or managers that often buy property, cars and other assets cash. The resultant of this is that you might end up being asset rich but cash flow hungry. An example is a person or business with R10m in freehold assets but needing a solution that releases the cash flow in a relatively cost-effective and sustainable way.
While this, “paying cash for everything” policy certainly works for a while there comes a point when a business needs to start placing raising external cash resources as a vital source of cash flow for growth and for managing cash flow better and more sustainably. Furthermore this Cash Flow management plan for both personal and business then needs to be reviewed quite frequently in order to generate the desired outcomes.

Planning effectively and often means that your cash flow management strategy will be more resilient to shocks

Planning effectively and often means that your cash flow management strategy will be more resilient to shocks

Even when sophisticated use of financial products is engrained, the funding sources and cash flow management have to be reviewed from time to time to match the HNWI, HNWF or Business owner’s objectives and goals and lower costs.

A Cash Flow Management planning process greatly enhances a business’ or a High Net Worth individuals’ ability to generate and sustain consistent cash flows at the most crucial of times. Very often a funder/bank has its own rules on which clients, businesses or deal to fund and with more available cash flow you can easily develop such a “fund” with the rules for you to invest in your desired investments.

In conclusion, a decision on how to manage your assets and cash flow to get the best value for your buck has to encompass the skills of at least a tax professional, a funding specialist, an Estate planner and/or a financial planner amongst other specialists. The eventual plan/exit strategy for the business is paramount in ensuring that the end goals of the entity/person undertaking the acquisition are ultimately achieved. Very often though High Net Worth individuals and/or businesses find that the banking processes, documentary requirements and risk management policies are often restrictive when attempting to release this cash flow. Having a good team behind you, led by a Bank/funder agnostic Cash Flow Management and funding specialist, that can deliver on this is the first step to getting this right. Having a funding or cash flow management specialist on your team is also vital as it can lead to more desirable outcomes.
Ntuthuko Zwane, is a Business Evolutionist and Cash Flow Management and Funding specialist at HMZ Capital “Your Partner In Progress”. HMZ Capital offers one-one consultations to High Net Worth individuals, their families and businesses that wish to maximise the cash flow they can generate from their businesses. We generally assist by optimising the financial reports and Management information required by funding institutions and generating bespoke cash flow management tools for the owners of a business while providing access to an assortment of funding sources and structured facilities through the funder network that permeate both personal and business funding.

Some definitions:
*A High Net Worth Individual is one that has at least R15m in tangible assets excluding their family home. This includes reliable business valuations.
*A High Net worth family is one with at least R200m in tangible assets excluding their main property that they live in.

A HIgh Income individual is one who earns an effective salary/drawings of at least R1,5m per annum.

Business/High Net Worth Individual or Family is used interchangeably in this blog.

Ntuthuko Zwane, is a Business Evolutionist and Cash Flow Management and Funding specialist at HMZ Capital. HMZ Capital offers workshops to businesses that seek to improve their cash flow by influencing their selling process. Please like our facebook page and join our mailing list to get more information from us.

1 reply
  1. 9-texts.com
    9-texts.com says:

    UHNW individuals are of crucial importance not only to the finance, banking and investment industry, but also to luxury companies who target UHNW individuals, charities, universities and schools amongst others.

    Reply

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