Posted on: December 1st, 2021
Family businesses are foundational to the development and growth of economies the world over. According to the U.S. Census Bureau, about 90 percent of businesses in the U.S. are family-owned or family-controlled, and family businesses account for half of U.S. gross national product.
They are therefore also instrumental in creating personal wealth for the families who own and operate them. Very often, successful family businesses create large personal fortunes for family members.
That said, this occurs only when family businesses are well managed and grow.
To help ensure effective management and strong but disciplined growth, many family businesses establish advisory teams. These are organized groups of leading professionals who contribute their expertise to help both the family and the company excel.
Families put advisory teams in place typically to achieve two key goals for themselves and their businesses (see Exhibit 3):
We see that formal advisory teams are more common among larger family businesses. When companies have, say, tens of millions of dollars in revenues, they are more likely to systematize their use of top outside professionals by establishing an advisory team— and, in many cases, compensating these experts for their insights and assistance.
That said, many smaller family businesses do rely on various experts for guidance and to act as sounding boards. In effect, these family businesses have an informal advisory team. We tend to find that regardless of the company’s size, as family businesses grow, the need for advice from others becomes greater. When the family business reaches some sort of critical mass, the advisory team often becomes formal and official.
What’s more, the family business advisory teams tend to evolve over time along with the business. As different needs and opportunities arise—brought on by business growth, business challenges and other developments both within the business and in the outside world—family businesses look for insights, direction and solutions from different professionals. At first, that might occur only on an as-needed basis. Over time, some of these professionals may be tapped frequently. When a cohort of specialists is relied on regularly, they’re often formalized into an advisory team.
There are two types of professionals that almost always end up on family business advisory teams whether those teams are formal or informal:
Most likely, the next addition to a family businesses advisory team is their company’s commercial bankers. Because of the (usually ongoing) need for credit, the family business’s commercial bankers are often in the loop. Moreover, their perspective can be very important in directing how to ensure the family business is able to get money when necessary.
Because of their own particular needs and wants, some family businesses add still other types of professionals to their advisory teams. Examples include:
The more any expert is needed, the more likely it is that specialist will become part of the advisory team. Meanwhile, there are likely to be quite a few other specialists who are engaged only for a specific project—their expertise is not needed regularly. These professionals will likely not be invited onto the advisory team.
We find that the best family business advisory teams meet a number of criteria:
Generally speaking, there are three main ways family businesses find prospective advisory team members (see Exhibit 4):
Advisory teams can be a powerful way for family businesses to both maintain their success and, more important, continue to become even stronger. Getting the right advisors in place and making sure they work well together may just be one of the key ingredients your company needs in order to move to the next level—and beyond.
This report was prepared by, and is reprinted with permission from, VFO Inner Circle. AES Nation, LLC is the creator and publisher of VFO Inner Circle reports.
Disclosure: The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS.
Fusion Wealth Management is not affiliated with Kestra IS or Kestra AS. https://www.kestrafinancial.com/disclosures
VFO Inner Circle Special Report
By Russ Alan Prince and John J. Bowen Jr.
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