A person who owns liquid assets to the value of $1 million or more is typically considered a high-net-worth individual. While we may think these people have always been wealthy, many high-net-worth individuals have inspiring stories that show them to have started from humble beginnings, overcoming poverty to achieve their success. Oprah Winfrey, Jay-Z, Trevor Noah and many other stars that became the greatest’s of all time are proof of this. Not only do they produce legendary work that brings them wealth, but they establish sub-brands that have a snowball success-effect, because of how respected they are in their respective industries. This lends them the opportunity to eradicate poverty in their broader family by employing family members to take care of the various sub-brands and products they may have launched.
While this is typical among high net-worth individuals, who will at some point in their careers employ the services of their family members as they work to pass down wealth to future generations, a number of challenges can arise in family business settings. We take a look at some of the common risks and how to mitigate them.
Benefits and risks of establishing family offices
There are a number of advantages that come with family-run businesses, not only do these businesses boast a stronger sense of unity among employees, but the family staff is often more committed as they understand that their input and the success of the business directly affect their family’s financial well-being. With proper succession planning, there may also be an opportunity to help reduce inheritance tax liability in a family business structure. But, just as it comes with its perks, so to does the family office pose a number of risks that include lacking the sought-after talent if they aren’t open to appointing staffers outside of the family pool – this could lead to stunted business growth. Family conflict is also common in these business structures, and poses great risks to its operations as family feuds can easily impact decision-making and business success.
5 business Tips to boost family office success
It is important for high-net-worth individuals to implement the correct business structure, protocols and processes when establishing a family office as a way of preserving wealth.
- Establish a clearly defined business plan: Like any other successful business, a family-run company should be governed by clearly defined goals and strategies found in a business plan. It can easily happen that families get comfortable and forget the objective of the business is generating more wealth.
- Implement clear governance controls: The family office should establish a governance structure that outlines the roles and responsibilities of staff, establishes employment policies, and dictates decision-making within the business. This will greatly benefit the risk of fraudulency within this type of business setup.
- Embark on regular skills-upliftment: Family businesses should prioritize continuous learning and professional development to ensure that they are keeping up with industry trends and best practices.
- Succession planning: Succession planning is critical for the long-term success of family businesses. Family businesses should establish a plan for transitioning ownership and leadership to the next generation or non-family member, and consult a tax expert to establish whether they can reduce inheritance tax through the business succession plan.
- Appoint expert advisors: Financial experts, like CFOs and accountants are greatly beneficial to ensuring accuracy, compliance and growth for family-run businesses. They delve into the numbers to ensure efficiently-run financial processes and operations and offer strategic guidance to ensure the business grows and functions in accordance with its business plan. Not only will your CFO aid with business growth, but they can also implement sophisticated tax-saving plans. In addition to financial experts, family offices also benefit greatly from the services of legal advisors and integrators to oversee operations.
High-net-worth individuals often have complex financial situations that require the skills of specialized professionals including CFOs and outsourced accountants to handle tax and financial advice. With a large number of assets, investments, and properties, their financial management requires careful planning, analysis, and strategic decision-making.
At Fusion CPA, we can help you manage and protect your family business and wealth portfolio. We develop winning tax strategies to save family businesses and high-net-worth individuals money, and offer business advisory services to ensure the growth and compliance standards of your business. Contact us for a consult today.
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.