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Secrets of sustaining a family business

In the fourth of a series of articles on the secret to sustainability in family business, Liam Lynch, KPMG partner and Head of Private Clients, looks at one of the major goals of a successful family business – the accumulation and preservation of wealth, designed to safeguard the family for generations to come. 

In previous articles in this series, Liam noted that the long-term vision of most family businesses is to create value and wealth for its descendants and for society as a whole. Now he takes a closer look at how to plan for this effectively.

“It’s important for the owners of a family business to put in place a comprehensive plan to manage wealth in a way that recognises that accumulating wealth, through the daily activities of the business, is different from preserving wealth for future generations,” Liam says.

“Both goals need to be carefully considered and managed in order to achieve multi-generational financial goals.”

To help put in place a financial plan that will preserve family business wealth, take time to consider the following points as laid out by Liam:

  • Conduct regular analyses of the business’ current resources and each stakeholder’s current and future financial needs.
  • Make sure you take advice to help you handle the legalities and technicalities of managing your business’ resources. Take the time to ensure that advisors understand the dynamics of your family and your financial position so that they can help you to achieve your goals.
  • Spend time understanding your different wealth planning needs. These can include wealth protection strategies, plans for philanthropy and charitable giving, education and development funding, inter-generational wealth transfers, inheritance taxes and estate duties and the tax implications of wealth distribution.
  • Foster and maintain open family and stakeholder relationships so that issues of wealth can be discussed in an open and honest forum.
  • Think long-term. Preserving family wealth can become more difficult as time goes on. Plan for your extended family by considering if you should establish some form of a family arrangement or trust structure instead of undertaking direct re-distributions of wealth, and Ensure that your children and grandchildren are financially educated and can properly manage relationships with the business’ financial advisors.

The challenge for younger generations

A strong financial education is the cornerstone of preserving your family wealth. It’s important that your children and grandchildren (the individuals who will be inheriting the family business and its wealth) understand how finances work and how to properly manage the business of business. “This can be a challenge for younger generations who have grown up with funds but haven’t had to manage funds themselves”, Liam advises.

Factors as diverse as divorce, mismanagement of funds by the ‘uneducated’ and unanticipated situations such as economic down turns can have devastating implications for a family’s accumulated wealth if the appropriate safeguards aren’t in place.

It’s important for families to consider and understand the implication of preserving, spending, and investing their business wealth. “For example, instead of individual family members making solo investment decisions, a family may also invest as an institution, achieving the greatest diversification, economies of scale, and better access to institutional money managers”, Liam says.

Another example is the setting up of a board of directors within the business that includes family members. “Structures like this provide a forum for governance and decision making when balancing the interests of accumulating wealth through the business and preserving wealth for the family. They can be a valuable tool for managing wealth and resolving disputes in a fair manner.”

Wealth management pays off

Investing time and effort in multi-generational planning can help to preserve the wealth of a family on more than a financial level. It can provide a space for parents to teach their children about the benefits of self-discipline, careful spending habits, business management and leadership, and the social, educational and personal benefits of philanthropy.

Liam believes that when properly managed, wealth can grow apace for the business and the family across generations, providing opportunities that go beyond the short term.

With common goals and a shared understanding of individual needs, an integrated multi-generational plan will go a long way to preserving and growing the wealth generated by a family business so that individual family members can pursue their unique interests while contributing to shared financial and social goals.

In the next and final of this series of articles, Liam looks at the topic of talent and how attracting and securing the right talent is key to sustaining a family business. 

Get in touch

Family business strategy requires informed decision making. For experienced guidance for your company, please contact Liam Lynch, Head of Private Clients, or any member of our Private Client team. We'd be delighted to hear from you.

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