Five smart ways family offices can assist the family business

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No matter how well a family business may perform, its fortunes often rise and fall with the dynamics of the family that founded it.

And while no family office would presume to dictate how the family should run its operations, it can help to safeguard the long-term health of the business in many ways.

Here are five key areas where a family office can be invaluable to the family business.

Protecting the family from itself

Sometimes family businesses have the wrong person in a decision-making role, says Eric Gilboord, founder and CEO of WarrenBDC.com, a Toronto firm that advises in the sale and acquisition of businesses.

“You shouldn’t necessarily be given decision-making power because you won the birth lottery. If the wrong person is making very important decisions, that can do serious damage to the family,” Gilboord says.

As an impartial third party, the family office can help put mechanisms in place to limit the potential of a single family member to injure the business. Tactics might include anything from limiting the size of cheques that can be issued by one individual to helping put strong, well supported department heads in place.

Another area where the family office can help the family steer its internal dynamics is through creating or updating the family vision: “If the vision is off and the strategy is off, then that can drive the company into the ground,” Gilboord says.

Managing banking relationships

It’s common for individuals and businesses to open and close bank accounts, lines of credit and so on as particular needs arise. As the family and its business grow, they may accrue layers of banking services that are poorly co-ordinated.

“Typically, you want to centralize the banking relationships,” says Robert Bezede, director of corporate finance with Norton McMullen Corporate Finance Inc., a boutique investment-banking firm in Toronto that works primarily with private businesses. “It’s the same with insurance.”

While the company CFO or VP of finance may have come up through the business and understands it intimately, the advisors in the family office are the “financial gurus,” he says, recalling one family with five different businesses that all dealt with the same banking institution.

“Every time they had a matter, it would go through the family office,” he says. This allows for more careful scrutiny of the holistic financial picture and, potentially, better rates.

Advising on capital investment

Common wisdom suggests that the best thing a business owner can do with profits is invest them back into the business. But sometimes a need for liquidity or an analysis of ROI dictate otherwise, and a family office can help provide capital discipline and guidance in investment decisions.

“There comes a time when you have to say, ‘Do I need this today?’” Bezede says. “Part of making a business more mature is not to say, ‘Here’s a piece of equipment; I should buy it,’ but to look at the long-term, multiyear payback on investments. The family office is not just looking at the day-to-day operation; they’re looking at the long-term cycle.”

“There are consultants who specialize in leasing equipment,” points out Eric Gilboord. “It’s a lot about having outside resources to offer assistance and spot mistakes before they happen.”

Taking the pulse of employees

If we learned anything from the Undercover Boss TV series, it’s that a company looks completely different from outside the boardroom, and sometimes the most junior employees have valuable insights. But speaking up feels risky, so good feedback is often lost to discretionary silence.

Gilboord notes that some organizations specialize in enhancing communication between staff and management. “They’re very good at what they do, and the purpose is to give staff the mechanism to give feedback to the leadership,” he says.

This goes beyond the hallway walkabout, he suggests.

“It’s deeper, stronger, more qualified feedback from all staff, gathered and assembled and presented. It’s looking for departments that are misrun, spending that isn’t necessary. One of the things that comes out of these programs is that not everybody is always on the same page about the vision and the strategy and the future of the company.”

Supporting business acquisitions

So when does the family office really come into its own? Apart from advising on the eventual sale of the family business itself, it’s in the area of acquiring other businesses.

“This is probably the biggest value-add, probably number one,” says Bezede.

As with advice on capital expenditures – but on a far greater scale – the family office is uniquely equipped to assist in evaluating a proposed purchase.

“Naturally these financial investors are very comfortable with buying businesses; they will take on that burden in terms of shouldering that business decision,” Bezede says. “We can help you think through growth. The management team and the family office look at acquisitions together. They’re almost like the in-house M&A.”

More from Canadian Family Offices:

• Nine hotspots where wealthier Canadians are scouting for property
• Paying the absolute lowest in tax no longer top priority for today’s families
• How to short-circuit family disputes, avoid a ‘Succession’-worthy mess

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