The Whitnell Way

I know it might sound strange for me to say that you shouldn’t focus on money.  Of course, I’m not saying that you should ignore your finances and hope for the best.  That would not be wise.  But through my experiences with serving families, something has become very clear to me.  Wealth is a means to an end – living a great life. 

Families work hard to build wealth, not for the sake of achieving some number on a balance sheet.  They want the wealth to support their family life.  As a family’s wealth grows, it is easy to get consumed by the numbers from taxes to balance sheets to interest income, etc.  There comes a point where it may be a good time to take a step back and reflect on the why – your family purpose – to assess whether your wealth and hard work is helping you to achieve a greater purpose.

I have the great privilege to work with families who wish to sustain their wealth to benefit multiple generations.  This can be quite a challenge.  Families that have worked extremely hard to build wealth find it just as difficult to preserve wealth over time.  The concern is that a wealthy family could go from shirtsleeves to shirtsleeves in three generations.  The first generation creates the wealth.  The second generation consumes the wealth and the third generation is starting all over again.  

While there are many strategies that can be put in place to preserve multi-generational wealth, here is what I’ve learned after so many years of serving affluent families.  There are two critical factors that will have a greater influence on this goal than anything else: recognizing tipping points and viewing family wealth as an enterprise.  The surprising thing is that neither of these are strategies, per se.  They are both about mindset, about taking a certain perspective.  Let me explain.   

Affluent families who face complexity in their financial lives will find that an integrated family office delivers real peace of mind. Simply put, a family office approach reduces complexity by coordinating key family advisors, integrating disparate financial interests and aligning stakeholders to support critical family decisions. The result is that affluent families can focus on being a family instead of worrying about how their wealth is managed.

But what exactly is a family office? The phrase “office” can have more than one meaning. Office can mean a set of rooms or a building where business is conducted. By this definition, a family office is simply the building where the business of your family is conducted.

“Family offices” are often thought of as the domain of the ultra-affluent. When people think of a family office, they often envision a team of highly skilled people, such as lawyers, CPAs and investment advisors, serving a single prominent American family, such as the Rockefellers.

While this has been the common perception over the last several decades, a new trend is emerging. This trend is designed to serve a changing demographic. During the Baby Boomer and Gen X generations, the US witnessed a proliferation of wealth unlike ever before.

Whitnell is pleased to announce that Robert Legan is now leading the Family Office Service team. His background in working with ultra-affluent families made him the obvious choice for this role. For those who may not be aware, the Family Office Service team at Whitnell works with a select group of ultra-affluent families who have complex financial needs.

I read an interesting statistic the other day, although I did find it somewhat disturbing. According to the Exit Planning Institute’s Readiness Survey (2013), 75% of business owners “profoundly regretted” selling their business 12 months after the deal. To me, this is very sad to hear. I’m privileged to work with a select group of entrepreneurs and I know how much passion and energy they bring to their businesses. They pour their lives into these enterprises.

They look forward to the day when all of their hard work will culminate in a transfer of equity to someone else. But all too often, that moment is followed by disappointment. Why?

I’ve had the privilege of working with entrepreneurs to transition their business to others, and I’ve noticed a disturbing trend. Many business owners may be unprepared to transfer their business when the time comes to sell. This not only delays the liquidity event, it can also have a material negative impact on the value of the business.

If you are a business owner over the age of 40, I’d like to give you some key insights to think about now so you can start to prepare for your business transfer. Even if you think this may not happen for another decade, these insights will help you be ready when the time comes.

Many successful private businesses are owned and managed by a limited number of partners.  Sometimes these partners are family members or life-long friends.  Other times the business partnerships formed after trusted working relationships were fostered.  But I’ve noticed a dangerous trend in these types of businesses.

It seems many closely-held, privately owned businesses do not have formal agreements in place to protect the business owners from unforeseen circumstances that could dramatically impact them and their families.  A high degree of personal trust and loyalty, handshake agreements, seem to suffice between partners.  I believe this is a mistake.  I’d like to share my perspectives with you. 

I’ve seen many families over the years grow successful companies that provide a great quality of life for the ones they love. Whitnell, in fact, was born out of a family business and still holds true to these roots. Serving families is an important part of our heritage and mission.

While family businesses provide tremendous benefits, they also present challenges. One of the biggest challenges comes into play when a senior family member, often the primary equity holder and sometimes the founder, decides to retire. If the founder’s children have shown interest in the business, the founder often wants to transfer the business to them. This should be simple, right? I mean, the family owns the business. So it should be a straightforward private transaction, right?

I was talking to a client recently who had a substantial liquidity event a few years ago. This event changed his life in more ways than he could have imagined. It produced what should be multi-generational wealth. But he said one thing that surprised me. His liquidity event did not produce peace of mind. He had worked hard with his family for many years and dreamed of one day reaping the harvest. But when it came, the experience was not what he thought it would be.

Family-owned businesses provide many wonderful opportunities and some unique challenges. Many business founders pour their heart and soul into their business for years and enjoy the fruits of watching it grow. But as time goes on, they begin to think about retirement.

For family-owned businesses, especially those families where children are involved in the business, the retirement of the business founder can be a real conundrum. There are so many issues to sort through. Some of these issues are financial or business-related. But other issues are unique to family-planning and caring for loved ones.

In my last article, I stated that a great financial team includes a wealth manager, CPA and estate attorney. The reason you need this team is because success in business does not necessarily equate to success in wealth. Even those who earn a high income may not achieve their wealth goals unless they have the right team guiding them.

Success in business does not necessarily equate to success in wealth. Just because someone earns a high income, owns a lot of assets, holds equity in a private business or has a large portfolio – this does not always mean that they’ll achieve their wealth goals. To achieve the goals that matter most to you regarding your wealth, you need a team of experts who work together to address a wide range of issues including financial planning, taxes, retirement, cash-flow, estate planning, asset protection and even charitable giving.

When I meet with business owners, it seems they want to talk primarily about their investment portfolio. What I often discover, however, is that their current investment portfolio is a fraction of their potential net worth, unless they’ve already had a liquidity event and sold their business.