Before accepting a seat on a board, you’ll want to firstly understand the risks you may be potentially exposed to, and then think about your propensity to withstand these risks and what strategies you have in place to mitigate and protect yourself against these potential risks.
This post provides an overview of the 3 strategies to mitigate risk and safeguard family finances.
Overall, there are two key areas to focus on when preparing for a career as a company director.
- The first area focuses on building up your personal brand, your governance skills and your professional network so you attract great board roles and build a portfolio of interesting and rewarding board positions.
- The second area, which often seems to be forgotten, is to undertake due diligence on your own personal and financial circumstances.
A career as a company director requires a thorough approach to structuring and managing your personal financial liability. At this stage of your career, the choices you make now can have a significant impact upon the lifestyle you desire for you and your family in the future. One ill-considered risk could take you years to recover from.
The 3 Steps to Protecting Your Career, Income, Family and Lifestyle.
Ideally the preparation should happen years in advance of transitioning from a full time profession to a professional board career. Today I will briefly go over the steps you may consider to safeguard your financial position.
Step 1 – Review Your Asset Protection
The first step, which happens years before you transition into a board career is to ensure your assets are well protected. You’ll then review them every few years to ensure it is appropriate for your needs. Factors leading to a review will depend on the range and complexity of your directorship portfolio, and you’d be wanting to ensure you have sufficient protection from potential liabilities that may befall you as a director.
Some of the key questions to consider when reviewing your financial structures include:
- Do I understand the ownership and control structure of my assets? Who owns what?
- Have there been any changes to legislation that impact my financial position?
- Have there been any changes to my family and dependents that need to be accounted for?
- Have there been any changes in board positions I hold and the related remuneration structures for these directorships?
- Have my cash flow requirements changed? Do any changes to my lifestyle (e.g. travel) require more money?
- What plans do I have for the immediate and medium-term future that might impact my personal and finance risks?
- Is my estate plan up-to-date? If I died tomorrow can my estate plan be executed according to my wishes? Will someone challenge it?
- Is my superannuation well-structured, compliant and offering maximum tax effectiveness?
Step 2 – Check the Proposed Income Structure
The next step is to check the structuring of directors fees and contracts. We recommend you go through your contracts and remuneration relating to your board positions with a fine-tooth comb. There is no single best way of structuring director fees and those for non-executive positions may take the form of:
- Non-cash benefits
- Superannuation contributions
- Salary sacrificing into shares
- Director fees or consulting fees
With regards to choosing between director fees or consulting fees, they both can have significant financial outcomes, however a consulting fee may offer you more flexibility.
Step 3 – Update Your Personal Insurance
Many directors rely on the Directors’ and Officers’ liability insurance but neglect other vital policies like up-to-date life insurance and asset protection insurance. If you were incapacitated through accident, injury or illness and could not undertake your duties as a director, how would this affect your financial position, lifestyle and family?
As you start planning for your career as a company director, it is vital to regularly review your personal circumstances and make sure you have the appropriate strategy in place to protect yourself against risks to your career, income, family and lifestyle.
For most people, it takes 12 to 18 months to secure their first directorship and several years to build an interesting and financially rewarding portfolio. Planning early will that ensure you have an income stream while you gain more experience and the appropriate wealth, asset and tax strategies in place when your director career takes off.
Interested to Know More?
In our experience the better planned and financially prepared you are the more choices you have, and the more secure you feel. We help by developing clear pathways for you to move forward to successfully resolving your key challenges around building long term security and financial well-being.
To help you maximise your opportunities, we have a number of options to help you in the first instance, including an online tool called MyHeatMap that pinpoints areas for you to focus on.
We also offer a Second Opinion for those who want a sharply focused and in depth review of immediate challenges or opportunities facing you.
If you would like a confidential discussion:
· Call 02 9492 0444 and ask to speak to Rob MacLean
· Email firstname.lastname@example.org