Family enterprises represent about two-thirds of all businesses. More than 70 percent of global production is attributed to family firms. Additionally, a majority of private wealth creation is a function of successful family businesses.
Based on our study of 336 middle-market family firms, four critical, often interrelated concerns were identified:
Grow the company: About three-quarters of family member senior executives at their family businesses said that they were very or extremely concerned about growing profitably over the next few years. Most family firms are highly motivated and determined to build their companies. At the same time, being able to continue to grow the business and add to the bottom line can go a long way toward alleviating any problems that might be affecting the family or the company.
Family harmony: For about 65 percent of those surveyed, ensuring family harmony is a high-ranking concern. Dealing with family discord can be financially and emotionally costly. From outright warfare to subtle sabotage, conflicts among family members can easily damage the operational effectiveness of their companies. This concern is more common among first-generation family businesses than family firms in the hands of the second generation. Many times the founder is interested in being attentive and responsive to all the potential heirs, but once the second generation is in control, the family dynamics have changed in meaningful ways.
Create more personal wealth: About 60 percent of the family members surveyed are concerned about creating more personal wealth. This objective was slightly more prevalent among the second-generation family member senior executives. This is often closely tied to growing the business. At the same time, family members can take many steps to leverage and protect their wealth. Most often, family business owners miss out on maximizing their personal wealth.
Executive succession: Nearly half the family business executives are concerned about effective successions. Without a succession plan that is well thought through, family businesses can easily derail. It is regularly necessary to make sure the appropriate people, such as the next generation, are ready and able to take over the reins of the family business. It is also wise to ensure that the business is transferred to the next generation in the most cost-effective way possible, taking into account the structure of the family.
Even though the four concerns are many times interrelated, the majority of financial advisors seeking to work with family businesses concentrate only on creating more personal wealth, usually through investing. Such an orientation is very limiting and therefore unlikely to enable financial advisors to connect with most successful family business owners.
A holistic, multidimensional approach to dealing with the needs and wants of affluent families and their family business is usually the more effective way to build meaningful and highly profitable relationships. By being able to help address all these critical concerns either through in-house expertise or by referring the family business owners to capable specialists, financial advisors are well positioned to deliver significant value and build their practices.