Critical Factors to Defining Success for Your Family Business Office
When significant wealth is created, maintained, or even spent, it opens new worlds and opportunities for these wealthy families and those who can efficiently manage it. These exciting new opportunities are exciting, but they bring complexities that may be well-spent if managed professionally and efficiently. The best decision here is to establish a Family Office or let financial institutions run your investment and wealth affairs. So, what makes handing over your wealth management to a Family Office or financial institution? Let’s find out.
What is a Family Office?
A Family Office is an organization or group of people that:
- Can manage your significant amount of fortune.
- Will oversee, invest, and maintain the benefits of running this fortune.
- Offer the same services as investment bankers or firms but are dedicated to only a single family.
- Is highly tailored to the needs and aspirations of the family and makes sure to take them in the right and fruitful direction.
What is Success, and How do You Measure it?
It is common knowledge that Corporations measure success with increasing profits each year. If the yearly revenue is the same, Corporation considers it a highly unsustainable loss. So, when we talk about the success of the family office, it is more a means to an end that is growing and prospering than straight-up revenue generation of the family without the particular family worrying about day-to-day financial matters.
Many family businesses want to remove the burden of opportunity from their kids and make it easy for the next generation to utilize their talents. Hence, they employ a Family Office to serve themselves and their wealth better.
To do that, you need clear pointers or milestones to success, which a Family Office works hard to achieve. No matter the size of the Family Office, they bring all information, such as revenue, tasks, and projects, to a Dashboard where they can track everything whose overview is visible to the wealthy family. This tracking can start from weekly goals to monthly and even yearly to have a clear overall picture for the family you are working for. But too many metrics may make or break the business or a family legacy. We will look at some of these critical factors in the preceding sections.
Keys to Success
Let’s first start with some key aspects of achieving success and then look into some critical factors.
Hard Working and Succession Planning
No matter the capacity of a family office, if you don’t know how to delegate tasks and responsibilities and evidently who will succeed at different stages, your office may fail or be chaotic. So, you need to make influential board members, define and designate responsibilities and assign independence in some respects to handle all the financial matters appropriately.
The planning must involve the beneficiaries, whether working, stay-at-home moms, or even retiring members. The Family Office will periodically update these stakeholders on the financial affairs to understand what they can spend and what needs to be re-circulated to increase their wealth.
Make sure to distinguish this from a standard corporate hierarchy or, for that matter, the chain of command a standard institution follows. The Family Office should tailor functionality and workflow according to the financial and other requirements of the wealthy family. Following are some unique needs based on the family:
- Financial Education – Most families worry only about how much you make them, but a Family Office should generally educate them about the basics of financial workarounds.
- Investment Policy and Asset Allocation – Trained professionals work round the clock to formulate and implement these factors, so assets are utilized and appropriately allocated. Even liquidate them for a more lucrative opportunity when needed.
- Budgeting and Forecasting Analysis – To provide a more clear picture masking the nitty gritty, so the family is satisfied and secure in their wealth management.
Some of the most critical Key Performance Indicators or KPIs are as follows:
- Profitability – Measuring your revenue vs. expense through defined metrics and periodically calculating the family’s wealth against investment performance.
- Financial Activity – Is the business compliant, and does it have Tax planning? It would be best to mitigate the family wealth’s risk by appropriate measurements and assignments.
- Liquidity – Measure and contain the working capital, with which metrics affect liquidating the family’s assets when necessary.
There are many more Financial and Non-financial KPIs, but this is a good start to keep in your Family Office for now. More KPIs can be defined when the Family Office grows and you have more than sufficient managers to expedite the growing wealth and avenues of revenue.
While we have discussed aspects and keys to success, knowledge of the derailers or blockers to success is equally important. The reason is that while good performance and hard work may not always translate to success, poor performance, and inadequate preparation undoubtedly convert to massive failures. Let’s look into some of these blockers.
- Investments – Blame can easily be put on Family Office if an investment flames out due to insufficient information or bad planning. No one share success but quickly shares blame. You can involve the family at critical milestones and take their approval before proceeding. This is where the business and financial education mentioned above comes in handy.
- Improper Tax Planning – The Family Office can lose a lot of revenue chunks to taxation or the IRS if the proper distribution is not managed and future investments are not floated.
- Family Service – The Family Office shouldn’t cater to family needs if it is conducive to the functioning and goals of the office. They don’t constitute success as they will not generate income unless it benefits your business or office.
Best Tips and Tricks That any Family Office Should Know
Finally, to top it off, here are some essential tips to help you achieve all the goals and avoid the abovementioned pitfalls.
- Communication – How you communicate financial information to the family should be concise and clear. Hire a professional manager whose only job is to explain them clearly if necessary.
- Setting and Keeping Boundaries – Successful managers understand maintaining boundaries of what is necessary for the Family Office and written down as outlined. If the contract allows, the Family Office can make changes; otherwise, until the next milestone, the family shouldn’t change it on a whim.
- Treat Everyone Like Your Own – Successful families treat their Family Office and its employees like extended families and build bonds. This creates a higher bar for the quality provided and long-term customers.
Like any business, a Family Office requires specific needs that you should not cater to emotional decision-making and written down on legal documents to manage as needed. If your wealth management needs more hiring, hire the right professional. If your Family Office needs to liquidate some of your assets for a lucrative endeavor, do it. Ultimately, considering these facts and aspects, your legacy and wealth will have much more breathing room to grow.