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What Types of Financial Services Do You Need if Running a Family Business

Written By Gary S. Williams, CFP®, CRPC®, AIF® and Nicholas A. Ibello, CFP®, AIF® February 27, 2019

When searching for a financial advisor, it’s important to know that there are many types of financial services companies out there, and you need to find the best who will provide the services you need.

For example, are you looking for a personal financial advisor or an advisor who has the unique expertise of small, family-owned businesses and the problems that can arise for them? If you’re in the latter segment, it’s crucial to work with an advisor who understands and can help with your issues and goals.

Succession Planning for Family Business

Many of the nation’s biggest corporations started with humble beginnings. And surprisingly, almost 35 percent of today’s Fortune 500 brands remain family-controlled. While companies of all sizes influence the economy, family-owned businesses produce 64 percent of U.S. gross domestic product and provide 62 percent of jobs! Given that our economy can’t thrive without the family unit’s influence on a free market, it seems imperative that these businesses have a solid plan.

Succession Plan Gaps

Experts agree that a succession plan is vital for all companies – not just those whose board of directors may share DNA. More than 80 percent of family-owned businesses believe that their legacy will continue five years or more into the future. With a passion for building on the family name and an opportunity to provide for their next of kin with viable jobs and investment opportunities, it makes sense to prioritize methods that can keep the business alive.

There’s a blind spot in translating proven business strategies into a mission that includes the family, however. Stats show a sharp decline over time in the survival rate of family-owned businesses: Only 30 percent are around for the second generation to enjoy, and by the fourth generation, just 3 percent remain. This presents a unique challenge for families that want to balance kin and profits over the long-term.

It makes sense for every company to create a management plan that accounts for the interests of the entire family, but not all businesses handle succession planning the same. The practice currently falls into two camps: Leadership (or management) succession and ownership (asset) succession. Many companies start thinking about the first type long before they consider the second, but if you have plans to retire – ever – ownership succession should be addressed in equal measure. It’s no longer acceptable to assume that the oldest child would like to inherit the business or that an equally-aged spouse should get it by default.

Succession Planning Strategies

There is no template for making it work. As business owners, it’s crucial to find a financial advisor who can provide the types of financial services companies need. Seeking the advisement of trusted professionals who are well-versed in investment management; succession and estate planning; local business regulations; and tax laws is vital. Consider these other best-practices for the smoothest transition:

  • Start early. No one can predict when ill health, for example, will leave you unable to manage your business. While creating a succession plan soon after your business has momentum is best, the next best time to plan is now.
  • Ask others. Getting input from those affected can prevent you from creating a plan in a vacuum. Some family members may opt out. Get their involvement early on to avoid spending too much time on a doomed plan.
  • Balance input. It’s also possible to solicit too much advice from family members. Allow time for comments, record everyone’s opinion and then take those comments to your professional advisors. You still hold the ultimate authority in matters.
  • Avoid emotional decision-making. It can be immensely difficult to be objective when deciding, for example, which child will run the business. You don’t have to be fair, however. Separate your feelings from the facts behind your business. A failed company hurts everyone.

Surround Yourself with Success

Many business owners could have never predicted the level of success they are now trying to offload onto a new generation. The magnitude of the decision is likely to be overwhelming. Take time to work through issues one-by-one, with the help of trusted advisors, if possible. Again, these advisors should have the types of financial services companies need. This may be your first time making such difficult decisions, but for a reliable professional, it’s all part of a day’s work.

Let the Certified Financial Planner™ professionals at Williams Asset Management help with your wealth management needs. Whether you need comprehensive and holistic financial planning or investment management, we can help!  We are fee-based, independent financial advisors located in Columbia, the heart of Howard County, Maryland.  Schedule your complimentary consultation today by calling (410) 740-0220!

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