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i3 Family CFO - Growing the Gift

Growing the Gift: Addressing Family Business Foundations and Fractures

The 2018 U.S. Trust Insights on Wealth and Worth® survey from Bank of America (BOA) examines the impact that people and relationships have on business ownership, from initial funding to exit planning.

A recent BOA survey on family business wealth finds that business owners could be doing more to manage and plan for family members, employees and others who rely on the business, and I couldn’t agree more.

Family dynamics increasingly influence the growth of small business in the United States. Historically, small business relied upon family members to support the growth of the business; the business benefited by employing dedicated (oftentimes free) labor and in-turn, provided a hands-on learning environment and subsequent professional and financial growth environment for family participants.

Fast-forward multiple generations to the present, and what was once a small, consistently income-producing enterprise, may now support multiple generational branches of a family, and encompass not only the original business, but now include property, philanthropic organizations and charitable foundations and a myriad of other assets requiring management and wise oversight; oversight for which the family as a whole, is unprepared to assume.

The family may also have become fractured over time; relationships within the generational management of the founding organization may have differing operational strategies and financial viewpoints, and the needs or interests regarding the continued management and investment (and reinvestment) in the original business may have significantly different goals.

Some within the family may have been directly involved in the daily activity of the business, while others – while benefiting from the proceeds of the business – were and are removed from active participation.

Individual business branches, investments and spin-off enterprises may have performed more successfully than others. Second and third families created as a result of divorce or spousal death may create nuanced layers of concern and guardedness. These stress points may grow into significant fractures over time.

Repairing the Family Fracture

Families that take the critical step of developing separate plans for their business and their family wealth management, and within those plans, create constitutional covenants, will find that although conflict will occur, they are better prepared to respond without creating organizational- and generational-wide disruption. More important, the assets of the family and their ability to grow will continue undisturbed.

A family in this position will often bring in an objective third-party to serve as the Family CFO along with a named family Board. The Family CFO brings an objective outlook to the family and works with the members and their representatives to craft and implement cohesive and distinct mission statements, goals, roles and expectations to guide family members inside and outside of the business. This collaborative approach to managing and addressing family dynamics may involve the inclusion of previously excluded or separated family members in the advisory process as well.

In an article published in the February 2016 issue of Forbes magazine titled The Secret To Keeping A Family Business Alive, the author discusses how family dynamics in a business “…can play out in any number of ways, but stats show family businesses don’t have the longevity their founders might expect: only 30% last to the second-generation; 12% to third; and just 3% to fourth.”

Preparing the Next Generation

Preparing the next generation to responsibly and ethically manage the dynamics of wealth and profitability while planning for the long-term longevity of the business of wealth is a goal of any organization and requires keen insight and first-hand experience.

According to the BOA survey: “Family involvement in the business creates mixed feelings for business owners: 71% agree it provides a competitive advantage, while 69% say that it also complicates decision making. Additionally, 7 in 10 say it’s difficult to manage family dynamics and to separate the needs of family from those of the business. Family business owners also cite the readiness of the next generation as a key challenge, both in terms of the next generation’s interest in taking over the business and in how to best prepare for leadership.”

Given the added dynamic of family member involvement for many family businesses, the need for planning is greater still. Succession plans in and of themselves are not enough however, especially in-light of the fiery personal dynamics that may be at play.

Steps to consider:

  • Create a Family Constitution outlining core values
  • Create a strategy for new wealth creation
  • Build a family global cash-flow statement
  • Build the foundation for future generations

In addition to insight, a Family CFO must bring information, infrastructure and investment strategy to the table. The Family CFO must foster collaboration with the family to create the Constitution, strategy and plans, and work with the family and counsel to implement.

Most important, a skilled Family CFO helps the family work toward the philosophic goal that wealth is a gift, not an entitlement.

To learn more about creating a sound Private Asset Management strategy for your family office and growing the gift, visit us at

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