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The Wealth Life Cycle - What If? – Part II

Last week we covered the “Wealth Life Cycle”  concept which highlights the continuum that all business owners occupy, from founding to exit and beyond.

In this week’s installment we are going to examine the Wealth Cycle attributes of new companies and owners. Those on the left end of continuum.

New businesses and their owners are governed on the one hand by their unshakable optimism in the opportunity they are pursuing be it service or product, and on the other by the myriad risks facing them in every aspect of their business.

Back in 2004, I was the CFO of a TSX listed start-up company. One of the responsibilities of small company CFOs is “Chief Risk Manager”. I decided that the best way to do that job was to develop a risk matrix, assess the impact of each key risk and either develop a risk mitigation strategy (e.g. product liability insurance) or make a thoughtful decision based the likelihood of the occurrence and its impact on the business to either discount it or let shareholders know that the risk was “naked”. Needless to say, as the business got more successful, even as the impact of the risks grew, our ability to mitigate those  “naked” risks improved markedly. Risk management is central to respecting the fiduciary responsibility to the stakeholders of a business including the owners, the creditors, the employees, the customers and to some extent, the community at large.

Here is a partial excerpt from the risk table I developed way back then.

We categorize risks into lower probability/higher impact (a product failure, the loss of a key employee, a product recall) or higher probability/lower impact (financial errors, a rise in interest rates).

Some risks were mitigated with internal programs, some were mitigated with financial products such as insurance or foreign exchange hedging. In many cases we relied on professional expertise such as intellectual property lawyers to help us file and defend patents and bankers to develop and implement exchange hedging.

As a new business owner, you face your own collection of risks in the pursuit of your passion. It is worth taking some time some think through the major and likely risks, developing some “what if” scenarios and how you might deal with them. In owner manager businesses, the stakeholder with the most to gain from this exercise is the owner. It is particularly urgent that you consider and mitigate high impact risks which, in the early going of your business, can be devastating.

Let’s Start A Conversation  today to discuss how these changes are affecting your financial future.

Submitted by Jim Pelot, B.Comm, CPA, CA; CFO and Co-Founder of Podium Prosperity Group and p|w|m Advisory Group

This article is provided for information purposes only. Although the content is believed to be reliable when posted, Podium Prosperity Group cannot guarantee this information is current, accurate or complete and does not assume any liability. The information is not intended to provide any insurance, financial, legal, accounting or taxation advice and should not under any circumstances be relied upon without consultation about your specific situation. The information is subject to modification and updating from time to time without notice. 


*COVID-19 Note:  This particular series, The Wealth Life Cycle has been interrupted by the COVID-19 pandemic.  We feel it best to delay further insights into this topic until Ontario begins to return to whatever our new normal looks like.  Stay safe everyone.


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