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  • Service: Enterprise, Family business
  • Type: Business and industry issue
  • Date: 7/11/2013

Preserving wealth vs. accumulating wealth: the challenge for family business 

Preserving wealth
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:


  • Conduct regular in-depth analyses of the business’ current wealth and each stakeholder’s current and future financial needs.
  • Secure the advice of an accredited financial professional to help you handle the legalities and technicalities of managing your business’ wealth. A good financial professional will take the time to understand the dynamics of your family and your financial position so that they can help you to achieve your goals.
  • Spend time understanding your different wealth planning needs, including wealth protection strategies, charitable giving programmes, education and development funding, inter-generational wealth transfers, estate duties, and the tax implications of wealth distribution.
  • Foster and maintain open family and stakeholder relationships so that issues of wealth can be discussed in an open and honest forum.
  • Think long-term. Preserving family wealth can become more difficult as time goes on. Plan for your extended family by having a wealth preservation and wealth preservation in place, understanding the benefits of family trusts rather than direct re-distribution of wealth, and ensuring that your children and grandchildren are financially educated and can properly manage relationships with the business’ financial advisers.

The challenge for younger generations

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.


Wealth management pays off

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?

Christophe Bernard

Christophe Bernard
I am a KPMG partner based in the French firm’s Paris office, responsible for encouraging the growth of our firms’ middle markets practice across Europe, Middle East and Africa, a majority of that market comprises of family businesses.
 

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