One of the major goals of a successful family business is the accumulation and preservation of wealth, designed to safeguard the lifestyle of generations to come. It’s important for the owners of a family business to put in place a comprehensive wealth management plan that recognizes that accumulating wealth, through the daily activities of the business, is different from preserving wealth for future generations.
Both goals need to be carefully considered and managed in order to achieve multi-generational financial goals. To help put in place a financial plan that will preserve family business wealth, take time to consider the following points:
A strong financial education is the cornerstone of preserving your family wealth and it’s important that your children and grandchildren (the individuals who will be inheriting the family business and its wealth) understand how finances work and how to properly manage the business of business. This can be a challenge for younger generations who have grown up with extensive funds but haven’t had to manage funds themselves.
Factors such as divorce, mismanagement of funds by the ‘uneducated’, and unanticipated situations such as economic downturns can have devastating effects on a family’s accumulated wealth if the appropriate safeguards aren’t in place. Asset protection strategies, such as the use of trusts designed to dissuade creditors from filing individual claims, can reduce much of the financial risk these events pose.
It’s important for families to consider and understand the implication of preserving, spending, and investing their business wealth. For example, a family can invest as an institution, achieving the greatest diversification, economies of scale, and better access to institutional money managers, especially if they’re using a single provider.
Another example is the setting up of a board of directors within the business that includes family members. Structures like this can be a valuable tool for managing wealth and resolving disputes in a fair manner.
Investing time and effort in multi-generational planning can help to preserve the wealth of a family on more than a financial level. It can provide a space for parents to teach their children about the benefits of self-discipline, careful spending habits, business management and leadership, and, even further, the joys of philanthropy.
When properly managed, wealth can grow a business and family, providing opportunities that go beyond the immediate. With common goals and a shared understanding of individual needs, an integrated multi-generational plan will go a long way to preserving and growing the wealth generated by a family business so that individual family members can pursue their unique interests while contributing to shared financial and philanthropic goals.
What challenges has your family business faced when it comes to accumulating and preserving wealth for future generations?
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Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.