Family governance is a topic that most families in our modern age do not understand and are unwilling to address. When the word “governance” is mentioned, people back off and feel a sense of being controlled. Generally, people feel that the family ought to be a place where family members are free from any control, and can be themselves. While this is true to a certain extent, the need for boundaries, rules and regulations is equally important in the facet of family life.

Our children need rules and discipline for them to grow up strong in character and abilities. It is my strong opinion that our children in our modern society especially in Singapore, has lost the respect for elders and discipline in their character. I say this after having spent 4 years in the education system coaching the young people of our generation.

Family governance will be the solution to the problems of our children today. Many parents feel that they lack control of their children and when they grow up to be teenagers, they will rebel against authorities in general and establish their own set of philosophies in life.

For family governance to be properly implemented in the family, there needs to be a few essential components:

1. Presence of the Head of the House

Needless to say, we need fathers to return back to their original calling as leaders of the family (see article “Fathers as Leaders”). A government needs a king, a leader, and a father will need to rule and govern his household, just like any other nation. When the father properly establishes his role as the head of the house, the children will naturally revere and respect his authority.

2. Presence of the Heart of the Home

A king will not be complete without a queen. If the queen is absent, the house will not be a “home”, lacking the warmth and nurturing environment which our children need. And notice that I use the word “presence”. Even if a physical mother is there, it may not necessary mean that she exudes the aura of a “mother”. Much is to be discussed about the topic of “presence” and I shall reserve it for a later time.

3. The Unity of the King & Queen of the House

Children are extremely intelligent. They know how to manipulate their parents to achieve what they want. Therefore, both the father and mother ought to be of one mind in various matters and establish clear boundaries for the child. For example, if child knows that mummy do not allow him to eat ice cream but daddy allows, he will naturally go to daddy to ask for ice cream and get what he wants. Mummy will then be upset. This problem will be easily solved if daddy and mummy can work things out and decide whether their child is able to eat ice cream, the frequency, and on what occasions, etc.

4. Clear boundaries for the family based on principles

Clear boundaries based on right & wrong, morality and values need to be establishing early in the family, preferably when the children are still young and teachable. Some boundaries may include:

• No watching of television or media devices when the family is having dinner
• Family dinners need to be prioritized above everything else, including work
• Children have to account for their going out with friends and to be home by an agreed time.
• Greeting of elders when seeing them for the first time.
• Looking at each other in the eye when conversing with the family member.
• Cleaning of room and the house every day

When rules, regulations and boundaries are established, it will create a totally different culture in the family. This culture will produce well disciplined children with a reverence for parental authority.

5. Consequences when boundaries are crossed

Children, even parents, ought to face consequences if they break the rules and cross boundaries. For example, if the child talks back at his mother and shows an attitude of disrespect, the father needs to step in to take action. He can isolate the child in the room, ground him for a week, cane him, or any other measures which commensurate with the discipline needed to correct the erring child.

The above components need to be carried out with a heart of love for the child and not for the parents own benefit. Parents who truly love their children will train and discipline them for the children’s own benefit.

What we have discussed so far is a minor facet of the whole matter of family governance. For a start, if we can successfully implement the above components in our families, we are already on a good head way to ensure our children and families are well governed with a strong set of core values, principles and culture.

Aaron Graham Tay, Certified Family Life Educator

How do we value investments in general? What are the principles and framework for us to value stocks, real estate, private business, etc? Can we, being lay people, confidently evaluate investments to get a good feel of the value and potential of the deal?

The answer is yes. And the following are some guidelines I use and advice my clients to apply too.

1. Revenue of the business

Revenue measures how well the company is selling its products. Higher revenue will mean that the company is selling a large volume of its products or at a higher price. It will mean increased potential profit for the company.

2. Potential market growth rate of the industry

We can do some research on the internet to find out what industry experts say about the future of the industry. We can get a good feel of whether it is a sunrise or sunset industry. We can know its challenges, government interventions, and also the potential growth rate of the industry. We can include this into our financial calculations. Understanding how to use an excel sheet will be very useful to do the financial modeling as there are many user friendly functions to help in calculations.

3. Expenses to operate the business

A high revenue generating business may not be profitable if the cost of doing business is high. An ideal business will be a low cost, low overheads business with high revenue. This will translate to higher profit margins. Costs will typically include labor cost, rental, machinery, raw materials, etc.

4. Inflation rate for expenses

Costs will increase overtime due to inflation. To understand whether inflation will rise in the future, we will have to know the interest rate by the central banks and the monetary policies set by the different governments of different countries.

5. Profit margin

The profit is derived after the cost is deducted from the revenue (Revenue – Expenses). Investors will usually be very concerned about the profit margin. A healthy business will typically have margins of about 30% – 40%. A very attractive business will have margins of 50% and above.

6. Cashflow

If the profit margins of a business are high, it does not mean that the cash flow of the business is healthy. This is because some payments from customers are accrued payments (delayed payments). So even though the revenue is “captured” on the accounts, the actual cash has not come in yet. Thus, businesses can run into cash flow problems, which is dangerous and detrimental to the company. The company can go into bankruptcy if cash flow matters are not handled well.

7. Financial Ratios

Some financial ratios are:

• Asset Turnover Ratio = Sales/Average Total Assets
• Debt to Equity Ratio = Total Liabilities/Total Shareholder Equity
• Current Ratio = Current Assets/Current Liabilities
• Return on Assets = Net Income/Average Total Assets
• Return on Equity = Net Income/Average Shareholder Equity

There are many other ratios to measure different aspects of the business, depending on the type of business and its particular industry. A good investor will take time to calculate the relevant and significant ratios and have a overall feel of the profitability and value of the business. A strong knowledge of reading financial statements will be very useful.

8. Net Present Value (NPV)

For any investment project, I will make sure to calculate the Net Present Value (NPV) after I have determined all the cash flows of the investment. With the advent of sophisticated and professional Excel spreadsheets, this value can be calculated with a few simple clicks on the mouse. As long as the NPV for the investment is positive, it will be a worthwhile attempt to invest in the particular project. Simply put, the NPV is the present value of all the projected cash flows in the future divided by the discount rate used. The discount rate can be the current real interest rates prevailing in the market.

9. Internal Rate of Return (IRR)

Similarly, when the cash flows of an investment is determined, the excel sheet can automatically calculate the internal rate of return. This return is when the NPV is ZERO. It means the reasonable return to be achieved from the investment. A good project will be one where the IRR is >15%.

10. Other factors

To determine the VALUE of an investment, there are many other factors to consider. Different investors/fund managers will employ different criteria to their investment analysis, depending on their styles and strategy. It will be beneficial to understand who you are as a person, your personality, and your beliefs and select the strategy that best suits you. For myself, I believe that VALUE investing is the way to go.

Value investing truly benefits all stakeholders; the investor, the business owner/entrepreneur, and the economy as a whole. Till date, Benjamin Graham & Warren Buffet has proven that VALUE investing is successful investing.

Aaron Graham Tay, Certified Financial Planner