Business owners account for a large percentage of high-net-worth clients. And advisors are in a unique position to help steer these exclusive clients to superior levels of success, says Jenifer Bartman, CA, CMC and founder and principal of Jenifer Bartman Business Advisory Services in St. Adolphe, MB.
Most start-ups are, one way or another, family-run operations. And when looking at a family business, the first thing an advisor must determine is whether it has been designed to fill a void in the marketplace and has potential to expand, or is simply a lifestyle business.
“A lifestyle business gives an individual a job. The person is focused on what they can do in a day and is not too concerned about expanding beyond that,” she says.
Such businesspeople certainly require help from advisors. They do so much planning and paperwork for their businesses that they often neglect personal finances. But these entrepreneurs aren’t good candidates for high-level financial advice because their businesses are predicated on personal goodwill and the models can be easily duplicated. Advisors oriented toward wealthy clients need to focus on business owners whose vision extends beyond the corners on which their stores stand.
“A market-driven business owner, despite it being a family business, won’t let that hold them back,” says Bartman who recently co-authored Master Your Investment in the Family Business: How to Increase After-Tax Wealth, for the Knowledge Bureau’s Master Series.
She stresses such businesses need to provide a product or service for which there’s a long-term market need because those dynamics are key to valuation. The business needs a good customer base, good products, and good employees. “By putting these things in place they’ve put value into the business and they could eventually sell it to put money in their pockets,” notes Bartman.
In that context, it’s the advisor’s job to ensure a client continuously focuses on the best interests of the business, particularly when it comes to hiring and succession. Many family business owners feel pressure to place children or other relatives in high-ranking positions, or do so in hopes they’ll grow into the responsibilities, regardless of their business acumen.
“Then it starts to unravel because they’re not making sure they have the right person with the right skills in the right places,” says Bartman. “You don’t want to have a business that’s solely dependent on the leader.”
Part of what advisors can do is help family-business leaders look at the big picture instead of stressing over immediate crises, she adds. “They can bring objectivity into the process because they aren’t a member of the family.”
The advisor can serve as a sounding board and resource that can call on outside experts to help keep the firm on a growth track. “My background is as a CA and in venture capital,” says Bartman. “Advisors who’ve had this opportunity are used to working with companies that are growing and going through the growing pains.”
Such advisors will look at what the business needs are at the senior level: management needs and the gaps. Is the firm running into problems because it can’t put enough product on the street? And if it is, who’s the right person to come in and pick up the slack?
“Or you might have a person in a position that’s passed them by; the job just doesn’t need doing anymore,” says Bartman. “Or perhaps the needs of the job have gone beyond the ability of the person doing it.”
If that’s the case, Bartman says, the advisor needs to demonstrate that people with the needed skill sets must be brought in from the outside; and stress the changes are good for both the business as well as the family that depends on the business for its livelihood. Allowing the company to be second-rate, and potentially go under, is a high price to pay for accommodating the employment needs of a family member.
“The family-business owner needs to go back to the vision for why the business was created in the first place,” she notes. “They have to work in the benefit of the business or the customers will go to a competitor.”
In addition to a business failing financially, word about bad management gets around. “People talk about the fact that the person they’re reporting to isn’t up to the job,” says Bartman. “Competitors find out. Customers find out and the business starts to erode. Once you go that way it can be hard to get it back.”
It makes retention hard too, because people will believe they won’t be taken seriously, or given meaningful promotions, unless they’re blood relatives. Such dynamics can rob a business of technical experts. If they feel isolated in the workplace, or insufficiently rewarded for hard work, they’ll take their expertise elsewhere.
Good staffing fundamentals are also a precursor to sound succession planning, because they help ensure the business remains viable long-term.
“It’s not good enough to just be in business, you have to be constantly pushing that competitive envelope,” says Bartman. “There has to be a strategy for incorporating non-family members into the business. You must be able to make the family business a welcoming place—make them feel they can get promoted and be involved in real decision-making.”
And nowhere is the value of such planning more apparent than during a crisis. If a business owner dies of a heart attack, or has a stroke that sidelines her for six months, there needs to be a senior leadership structure in place that makes succession possible. An advisor, says Bartman, must help the owner see the big picture and determine who will take over; and figure out who may be holding the business back should a power vacuum emerge.
“Don’t let the owner play imaginary succession if the child isn’t up to taking over,” she says. “And if the owner is committed to the child, you either have to come up with a development plan for the child or move them to another job.”