The succession of family businesses across generations presents its fair share of challenges due to differences in expectations, preferences and personal passions.
Families can consider several options in planning, implementing, and expanding their investments which include the creation or seeking the services of a family office.
Typically, a family office is expected to support its vision and legacy, ownership transitions, leadership change and successful wealth transitions.
Entrepreneurship is at the centre of most successful family businesses. It is defined as the activity of setting up a firm, managing it and taking on financial risks with the aim of making a financial return on the investment.
Business management is an arduous task that requires a combination of resources, which includes time, skills, experience and expertise.
These resources may not be readily available to members who seek to expand their wealth and ventures.
The succession of family businesses across generations also presents its fair share of challenges due to differences in expectations, preferences and personal passions. It is critical that unity of purpose and harmony is entrenched in the group to successfully operate them.
Families can consider several options in planning, implementing, and expanding their investments which include the creation or seeking the services of a family office.
Typically, a family office is expected to support its vision and legacy, ownership transitions, leadership change and successful wealth transitions. The benefits of a family office are privacy and confidentiality, among others, since it acts as the sole custodian of the relevant family information.
It also maintains details of the entire family portfolio of assets and liabilities, tax affairs and other relevant general information.
It also presents other advantages, which include professional governance and management structure, the potential of making higher returns, alignment of family member interests and good risk management practices.
There are different types of family enterprises, which include single-industry family operating companies, a family holding company with operating companies and private equity firm-style family offices, among others.
Undoubtedly, the establishment of a family office is a major undertaking. It is also open to operational challenges and thus they risk falling below the expectations of the family.
Other potential issues include legal and tax gaps, mistrust in external managers, misaligned expectations on return on investments and differences
Solid foundation
The foundation of a family office is a key determinant of its success or otherwise. It is critical that a solid foundation and the necessary support structures are created and maintained to ensure it comes through and outlives different generations.
A family office business plan is a key document that should be prepared ab initio. It defines its expectations, priorities and other critical matters that act as a guide in the operation of the family venture. This ought to be a living document that is updated to reflect relevant economic, market and other relevant changes.
It also defines acts as a guide towards financial planning, which might entail investments, philanthropy and life management. This is in addition to laying out the strategy, which should include business and estate planning.
Governance is a key cog in the success of family businesses and also forms a key aspect of the business plan. This outlines matters relating to reporting, record-keeping, succession planning, compliance and risk management, among others.
Businesses with a long-term outlook tend to overcome structural and seasonal challenges which are the norm in the business world. This allows firms to consider among other things, projected asset growth, income against the projected number of future family members as well as their consumption.
The involvement of an external independent adviser to lead and facilitate the process enables family members to address all essential matters and bring different perspectives and holistic solutions.
Generally, a family office can diversify the family’s assets by investing in non-mainstream investment options which spreads the risks and enables it to accommodate the personal preferences and passions of different family members.
The family office could adopt a mix of investment strategies, which include using third parties such as asset management funds to invest their capital in third-party assets, or direct investing in which case the family office invests capital into a specific company/asset.
By and large, a family office could act as a major driver of the growth of a family’s wealth as well as the professional management of the wealth across generations.
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