Standard Operating Procedures for Money Management

In an interview for The Family Office Book – Investing capital for the ultra affluent by Richard C. Wilson, Michael Connor (interviewee working for a single family office), stresses the importance of cross training both on the investing side of the Family Office as well as in the back office functions.

He indicated that many smaller family offices still use spreadsheets for back office tracking. Cross training is important because, as he says:

“if the person who handles all of the accounting and taxes and various other things left and no one is familiar with that role, it can become a significant issue.”

Cross training on the standard operating procedures is a must do task.

Richard Wilson, the author, indicates in another interview that:

“I believe most family offices have a core set of 20, 30 or 50 processes and procedures that are repeated daily, weekly, monthly, quarterly or annually that should be documented step by step and constantly improved”.

For those of us too ‘poor’ to be part of a family office (most people using family offices have at least $100 million dollars), standard operating procedures for our money management and interactions with advisors can and probably should be documented as well. In addition, we should make sure that more than one person in the household, and maybe even a person in the next generation, should be cross trained in them.

Although everyone has their own method and routine for managing their finances, I am most familiar with my own and that is what I will share with you today.

Our SOP for money management.

What we do has developed over the past 42 years of marriage and 65 years of life. Our financial life started out quite simple and gradually became more and more complex. Even so, it is still pretty straightforward compared to others.

Over the years we have switched back and forth on division of duties with finances. Right now, he is ‘the bond desk’ handling tracking and investing in bonds or bond funds – with my input. I am the stock and mutual fund manager, tracking and investing and watching for tax implications – with his input. We both pay bills – he handles most of the personal ones and I pay the business ones.

Daily tasks.

The daily tasks that are done in our household involve making sure that any checks written get put into the check register and subtracted from the checkbook balance; and my spouse checking the share prices of our two bond mutual funds at end of day each day, which I know he doesn’t have to do but it is his way of keeping track.

Morning discussions between my spouse and I occur most days and typically drift into the financial aspects of our lives. Lately we have been talking about whether or not we should move to a less congested area, as our neighborhood is about to undergo some additional development.

We also follow along with the market, keeping tabs on the various stock indexes so we can take action if it would be beneficial to our finances.

Weekly tasks.

If we are considering a purchase, we research the product and pricing options well ahead of the purchase, to find what we want at the best price.

Monthly tasks.

Our monthly tasks are a bit more structured and consist of the following:

• Check on bills for which we don’t get mail – to make sure they are paid.
• Input monthly statements to Quicken desktop and produce a new net worth statement and updated budget.
• File monthly paper statements
• Invoice those folks with whom I contract.
• Pay, via Paypal, those folks who contract with me to do staff writing and other tasks for this site.
• Update business electronic books with cash flows.
• Review balances, if any, left on gift cards given to us (if any) and make plans to use the balance.
• Pay in full, any credit card charges on the cards.

Quarterly tasks.

Taxes and asset allocation calculations consume the most time for us quarterly.

• Review asset allocation to see if we need to sell or buy in any certain part of our portfolio.
• Research purchases for under allocated areas.
• Calculate and pay state and federal estimated taxes.
• Calculate and pay business sales taxes.

Annual tasks.

Starting in November and extending through March, we zero in on many different financial activities. It’s the busiest financial time of the year for us. Here are all the tasks we do.

• Update and verify business books in preparation for tax calculations.

I go through all income and expenses and make sure the receipts are properly organized, entered into my spreadsheets, categorized for the accountant and totaled.

• End of year is the time to update the household books, share the info and keep an off location copy. To do that I:
  • Update Quicken and prepare year end electronic financial disk copy for safety deposit box storage.
  • Update year end net worth statement and print/distribute one copy to each family unit. Store one copy on year end financial disk.
  • Update financial locations document and print/distribute one copy to each family unit – including our executor. This document is a master list of where to find the important stuff that would be needed should we die together.
  • Update household inventory and print/distribute one copy to each family unit.
• Update our family unit time line with this years main events. It’s been 42 years, sometimes we forget what happened when. This helps us keep track of things like when it is time for a new roof or when did the sewers replace our septic tank.
• As tax forms roll in, copy them for the accountant.
• Prepare accountant’s tax worksheet and attachments and deliver. We keep the originals.
• Pay Uncle Sam and state income taxes for the year.
• Hold limited liability company annual member meetings and document results on paper. This helps insure that our business entity is distinct from our personal lives, to hopefully limit our liability.
• Check credit report.
• Read annual reports and respond to proxy queries.
• Review money in budgeted categories and adjust (if needed for the coming year).
• Do some planning for the upcoming year. We think about questions like: should we convert traditional IRA funds to a Roth; if we sell a property, what does that mean in regards to tax planning;should we bunch contributions in the coming year; should we pass part of our estate to our children and grandchildren via annual gifting this year and more.
• Review plans for upcoming year with the accountant to get answers to questions.
• Hold an extended family meeting with our sons and their families. This gives us a chance to talk finances, estate planning, college funding for grand-kids, investing and many other financial and non-financial tasks.

Tasks we do once in a while.

We aren’t on a strict schedule for these, but they stay in the backs of our minds and surface occasionally as to dos.

• Review insurance to see if we still have the coverage we desire at a competitive price.
• Review wills and other estate planning documents in light of any new regulations or changes in our own lives and change if needed.

Do you have standard processes you use to get your financial house in order?  Are they different from ours?