HOW TO EVOLVE YOUR FAMILY OFFICE 


A family office acts as a single coordinating function between family members and their key advisors. There are various pathways to creating a family office.  Most start with the family office embedded within the family business structure, informally managed by a loose collection of the family’s key advisors. Often the first real evolution involves the separation of the family office from the family business. This evolution creates a separately resourced “business within the business.”

Advantages to creating an independently functioning family office include:

Information management.  You can’t manage what you can’t measure.  First and foremost, managing family capital involves understanding what we own (including operating businesses, real estate, and investments), how much it’s worth, and what we expect our future returns to be.  Many successful business families cannot produce this information in a cohesive and timely manner, which leads to disarray, mistrust and breakdowns in ownership conversations.

Independent advice.  It’s hard to see the message from inside the bottle. An independent, outside view brings new perspectives and fresh ideas, ones we know that may have worked for other families.  For example, many families have as a goal an independent board of directors (60% or so of the board is non-family) which would bring outside views and independence to decision making. A simple way to start the process is to bring outside advisors to the family office.

Coordination amongst family owners.  Each of the owners needs to understand first what is the current ownership structure, and then what is future plan for ownership. This can be difficult to achieve with owners inside the business, with deep experience in operations, and owners outside the business who have different perspectives and interests.  An independent family office can educate and engage each owner in the planning process.

Family purpose, our “Why.” Every business is an extension of the owning family’s values and vision. When each and every owner shares an understanding of the family objectives, and how they relate to the business objectives, family members become part of a special community aligned behind a common purpose. Creating a family office creates a family community.

Liquidity: where will the cash come from? Every family owned business will have its own special needs for liquidity, especially around generational transitions.  A family liquidity plan, clearly understood by the owners and funded with specific assets, is an essential ingredient for family-owned companies.  A family office will provide the family the capability to assess the various strategies available for dealing with estate taxes, buyouts, dividends, and other family financial requirements.

Transparency. As the saying goes, “when transparency ends, conspiracy begins!”. Transparency of ownership, financial and other information is a challenge for all business families. While most would agree that transparency is essential, most would also agree that it is difficult, often impossible, to achieve in practice. The demands of day to day business leave little time for lengthy conversations about ownership issues. A dedicated family office provides the energy and resources necessary to carry out this important task.

Coordination among key advisors.  Many business families and their advisors experience high levels of frustration in getting even the simplest of plans in place. Wills and agreements languish in draft form. Accountants and lawyers are not coordinated. In short, the left hand doesn't know what the right hand is doing. A family office allows family members and key advisors to be aligned and efficient.