Neal calls “taking the enterprise view” the process of managing your family affairs to ensure cohesion, legacy, wealth preservation, and ultimately, a smooth transition. According to Neal:
“When a family is engaged in all aspects of the enterprise: the family legacy, the business
legacy, the philanthropic legacy, and the financial legacy, there is a much greater chance of wealth sustainability across generations. While studies have shown that the wealth alone will not keep the family together, taking a broader enterprise view can create the necessary glue.”
This process involves a focus on five key activities…
1. Shared vision
“They have a desire to preserve the family history and guiding principles, and work together on a shared vision.”
This is the process through which the founder’s vision is shared and becomes embedded in the family business. It involves the family leader giving up some control and entrusting the future leaders with a stake in the outcome. The current leader should support the shared vision effort, be willing to listen, and give the family the resources to come together.
2. Formal governance, strategic planning and long-term thinking
“They utilize their experience running a business to formalize financial matters outside the business.”
Formal governance, strategic planning and long-term thinking – these are all components of a successful business and are also needed for the smooth running of a family office. Family leaders are responsible for setting the course of the family outside the business – they make decisions on how to invest liquid assets and manage wealth, they communicate with owners, and they educate and develop future leaders.
3. Diversifying assets
“They diversify financial assets outside the business and choose quality advisors to help them.”
By diversifying liquid assets, they are better equipping the family to weather future volatility. Being willing to rely on outside expertise is critical in making investment decisions and building a sustainable enterprise.
4. Create new wealth
“They foster an entrepreneurial spirit within the family.”
The wealth was most likely created by taking risks, so it’s wise to encourage the next generation to do more than just preserve capital. Creating new wealth can be made easier with education and an effective process for evaluating new ventures.
5. Focus on more than just the business
“They feel responsible to the local community and use philanthropy as a way to sustain family continuity.”
Building philanthropy and a sense of responsibility into the culture of the family can provide a glue that resonates with family members who don’t feel an affinity to the business, hopefully preventing competing goals of re-investing or distributing the cash flows from the business.
Click here to read more about these 5 Ways Families Can Take the Enterprise View.