Family-owned firms over the long term have been shown to grow more rapidly than non-family-owned firms. They have patient capital. They have command of their enterprise, think about continuity, their community and connection to stakeholders. They think about their employees. Employees are more loyal.
Most private companies are family businesses. Even if family members are not currently involved, your business was likely created to support the lifestyle of your family and to generate wealth for your family. You may be thinking about passing along ownership to one of your family members. But unfortunately, today many of the next generation do not have any interest in taking over and running the business.
According to Amy Wirtz of The Family Business Consulting Group, over 89% of business families control more than a single firm and the mean number of firms controlled by them is 3.4 firms. Perhaps you already have a separate company that owns your real estate. Perhaps one of your family members owns another company.
As families begin to own multiple businesses, they begin to transform into what has been described as a Family Enterprise. Now the dynamics become more about managing the wealth of the family, than running a single business.
There are four structures that can be used to help manage business families and Family Enterprises:
- Family Advisory Board
The concept of an Advisory Board for a family run business is to assemble both internal and external resources that advise the business owner on a variety of matters. Members of an Advisory Board can include other owners of family run businesses, wealth advisors, accountants, lawyers, or a variety of individuals who agree to become Board members. For smaller companies, the fees paid to these Board members is small or nothing at all. - Peer-to-Peer Advisory Board
Another option is to have the owner join a Peer-To-Peer Advisory board, particularly if they can join board with members that also run family businesses. - Family Council
Just as an outside board acts to protect the financial and business health of the company, the Family Council protects the growth, development, and welfare of the family itself. A family council provides family members with a regular, structured forum to communicate concerns, have input, and participate in determining how to deal with business issues. - The Family Office
For larger family enterprises, it may be appropriate to create a family office. Family offices provide a broad spectrum of private wealth management services to one or a small number of ultra-high-net-worth families.