| 16 November 2009
When it comes to the dynamics of successful families, one of my favorite reads is Gerald Levan. It is even better that one of the foremost experts on the issues of wealth and affluence and the challenges it poses for families is originally from here (we should also note that he is a personal friend of our firms President, and thus we may be biased.)
This week he muses about what is often missing in the evaluation of a family business and its assets, a consideration of whether the business being a family business is an asset or liability. In making planning decisions this is a key element that must be assessed; influencing organizational choices, liability management and obviously questions of succession and Estate Planning.
Maybe most importantly of all, it impacts questions about what effect the business has on a familiy's happiness.
Some businesses are formidable competitors in the market place because of family involvement. They are managed by talented family members whose positive relationship -- though quite intangible -- constitutes a very valuable business asset. (“Green light” families I call them.) This valuable business asset exists only because the family has discovered and nurtured it. This asset is not reflected on the balance sheet. This asset cannot be acquired or transferred.
Some business families are profitable in spite of family involvement. Wracked by dissention and conflict, their family relationship is a definite business liability. (“Red light” families I call them.) I empathize with their CPAs whose generally accepted accounting principles provide no place to report this liability in the financial statements.
Then there are businesses whose family relationship is part asset and part liability. Some family employees perform brilliantly; others are coasting. There is undue tension between inside and outside shareholders. They settle for substandard business practices and less-than-satisfactory family relationships for the sake of “holding things together”. (“Yellow Light” families.) The assets and liabilities of family management and ownership are offsetting.
I suggest reading the whole thing, and poke around while you are there.