Jennifer is in her mid-40s, married with three school age children. She believes her role is at risk of being made redundant and begins preparing for the inevitable. Is now the right time to follow her dream and start her own business? The following case study explores some options to consider when faced with this scenario. In a redundancy situation, the payout could significantly reduce Jennifer’s day-to-day cash needs as she could pay off her mortgage, prepay school fees or use the payout as capital to start the business. With support from a trusted financial advisor, Jennifer saw that she could package her financials so her redundancy payout effectively gave her two years equivalent at full salary because of the tax treatment and options created by the employment agreement with her current employer. Working closely with her financial advisor, a financial plan was put in place to enable Jennifer to confidently pursue her dream. Firstly, a personal super fund encompassing all key insurances was established, as well as an offset account on the mortgage so the redundancy funds could be put into the offset account. Jennifer’s mortgage payment was changed to interest only with no payment of the principal. The interest-only mortgage means the principal is not being paid off, reducing her upfront cashflow needs. An equity access loan of $100,000 was also set up for any future capital needs on the business but was left undrawn. By establishing a self-managed super fund and her own income and life insurance, Jennifer unencumbered her financials from her employer. This was done while she was still employed to better the chances of getting her insurance underwritten. Over the following six months, Jennifer spent time focusing on establishing her website, marketing database, invoicing and credit terms, and IT/phone/internet services. She also invested in skills by undertaking some short courses in small business marketing and social media as well as finance for start-ups, attending networking functions and industry briefings, and importantly updating her LinkedIn and Facebook profiles to represent herself and her brand aptly for the next phase of her working life. Jennifer was finally offered a redundancy and took it, and now has taken the big step and set up her own business. In essence, Jennifer took control prior to the event and therefore left the company on her own terms. Her financial plan meant she was able to take the next step confident that she had the resources to meet her day-to-day cash needs, and insurance in place to handle the unexpected, during the start-up and establishment phase of her business. The information contained within has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness having regard to your objectives, financial situation and needs.
