In the world of family offices, the pressure to perform is high. There is a focused and relatively small number of shareholders. Those shareholders have high visibility in the management team and board. For many families, the success of their family office is a testament to their hard work and a desire to leave a legacy.
While you may want to avoid selling or seeking a ten-year planning horizon, some better practices exist. It is crucial to approach the management of your family office with the same level of professionalism, strategic planning, and foresight as if you were going to sell in 36 months.
Here are some principles that can help family offices thrive by running them as if they were going to be sold. Build a multi-discipline approach.
Focus on the goal, not the task.
Goal-oriented thinking is a powerful way to approach your ambitions. However, it may seem counter-intuitive because it feels like you need to look into the details. Instead, goal orientation involves focusing on the result and how you can achieve it rather than getting bogged down in each task's details.
Goals are critical because they guide us while shaping our desired end state.
When working on a task, losing sight of the bigger picture can be easy. If your goal is to bake a cake and you're thinking about how much flour and sugar you need, it's easy to get distracted. Fixating on whether by weight or volume for hours gets you into analysis paralysis. The adage “Measure twice, cut once” is sound advice.
However, in the end, if you don’t cut, the measurement is a wasted effort. There is value in the details, but knowing when is enough is enough.
When you're focused on the end goal, you'll be able to see what needs to get done. Make a list of the tasks, delegate as needed, and set a time limit. Then, when you reach your goal, how will you measure success? All these things are part of goal orientation.
Now that you have a clear goal and action plan, it's time to act. Get started. Someone taught me there is no good writing, only good editing. Don't try to fix the spelling and grammar along the way. If you never finish that novel, with spelling and grammar mistakes and plot holes, you’ll never get it ready for editing and wrap-up. You can change your plan along the way and know how to make course corrections.
Communicate, communicate!
Maintaining open, transparent, and professional communication is one of the most important aspects of running a successful business. This includes having regularly scheduled meetings, clear reporting structures, and ensuring everyone is on the same page regarding the goals and objectives of the family office. For example, it might be easier to say, “If you want to know what’s going on, ask your Aunt Tonya,” than produce a shareholder letter.
Keep meticulous records and documentation. Only some businesses are ready for a document room, but you should have a similar function. It also makes for exciting and heartwarming reading for future generations.
Implement Robust Financial Management
When preparing a business for sale, financial management is the top priority. The same should be valid for your family office. Implementing systems for tracking and managing expenses, investments, and cash flow will help you make better-informed decisions and demonstrate the professionalism and stability of your family office to potential investors or partners. Many businesses are lifestyle businesses. That may lead to less… structured accounting and SGA practices. The business makes money, but would it pass the sniff test for potential outside partners?
Develop a Strong Governance Structure
Establishing formal governance processes and protocols, such as a family council and clear decision-making guidelines, will help prevent conflicts and ensure everyone is aligned. It’s not a matter of everyone agreeing; it is about providing that the road rules are documented and transparent.
Have a long-term strategy.
Even if your horizon is short, focus on the long term for the business. This includes diversifying investments, having a well-defined succession plan, and ensuring the family office is well-positioned for future growth. You always want to maximize the returns on the business. It makes it attractive to third parties and leaves a legacy of excellence that will be well received. You want to be known as a great ancestor AND a descendant.
Build a culture of continuous improvement.
To maximize the value of your family office, it's essential to evaluate and improve operations continually. This may involve outsourcing certain functions, investing in new technologies, or reevaluating investment strategies. By consistently striving for excellence, you'll ensure your family office remains competitive and attractive to potential buyers or partners.
Do you invest in your people? For most companies, the most significant investment and expense are people. Turnover costs more than up-leveling your team. Is there an annual plan or review for people doing the work?
Have a DEI (Diversity, Equity, and Inclusivity) plan.
Investors and partners are increasingly seeking businesses prioritizing sustainability and social responsibility. In addition, you make the business a more attractive and pleasant work environment where people can give their maximum performance. As mentioned above, the more you look after your people, the better it is for all.
The tl;dr (too long, didn’t read)
Running your family office as if you were going to sell it may seem daunting. Still, you'll set the stage for lasting success by focusing on clear communication, robust financial management, strong governance, long-term strategies, operational excellence, and DEI. Remember, the goal is to create a legacy that will stand the test of time – and that starts with treating your family office as you would with someone else’s business.
There is much more to this strategy, but I’ve given you a start. Connect with me at
https://www.lawrenceilerner.com/contact for more.
