In this "sanity check," a legal expert and writer talks about vulnerabilities that can affect family-owned businesses and how to handle legacy, transition of ownership, and more.

Regular Family Wealth Report contributor, and lawyer, Matthew Erskine, examines the steps that those owning family businesses should consider in terms of risks and challenges. As ever, Matthew succinctly lays out the territory. The editors are pleased to share these insights; the usual editorial disclaimers apply. To comment, email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

Family business owners face an overwhelming array of challenges – everything from succession planning and market risks to rising taxes and unpredictable regulations. Add to those, concerns over privacy, feckless heirs, and the evolving social consciousness of the next generation, and it’s no wonder that many feel uncertain about the future of their enterprises. Now, with economic pressures like inflation, geopolitical tensions, and financial market volatility, it's more critical than ever to evaluate whether your business is prepared to thrive across generations.

But here's the issue: Too often, families rely on a multitude of disconnected plans – trusts, LLCs, and other entities – without a holistic view of how these strategies work together. The result? Unintended consequences and hidden risks that threaten the sustainability of the business.

This is where estate planners come in. The role of estate planners is to provide a comprehensive sanity check on your existing plans, ensuring that you have the resources, governance, and flexibility necessary to achieve long-term success while minimizing systemic risks. Below, you’ll find a streamlined sanity check that highlights the key areas every business owner should assess. If any of these points raise concerns for you, it may be time to review your strategy.

Sanity check: Ensuring long-term success for your family business
This sanity check uses proven indicators to evaluate whether your business is set up for sustainable success. By identifying gaps and weaknesses now, you can prevent costly mistakes down the road.

1. Resources: Are you properly equipped?
Ensuring that your family business has the right resources in place is essential for continued growth and stability.

Financial health:
-- Do you have sufficient liquidity to cover potential taxes, legal fees, and unexpected disruptions?
-- Are you confident that your financial resources align with your long-term business goals?
-- Have you set up contingency funds to weather economic downturns?
-- Human capital:
-- Have you adequately prepared the next generation to take over leadership?
-- Are key executives incentivized to stay through transitions, maintaining business continuity?
-- Do you have a strategy to retain top talent and pass down institutional knowledge?

Strategic assets:
--- Are your intellectual property and client relationships safeguarded during transitions?
-- Is your business leveraging technology to maintain its competitive edge?
-- Have you documented critical processes to ensure a smooth transfer of responsibilities?

Action point: If you are uncertain about any of these aspects, it may be time to reevaluate your resource allocation. Contact me to explore strategies for optimizing your financial and human capital.

2. Governance and control: Are you positioned to maintain control?
Proper governance is the backbone of a successful family business. It ensures that your legacy is preserved while empowering the next generation to lead.

Ownership and succession:
-- Is there a clear and legally sound succession plan in place?
-- Have you implemented mechanisms to resolve conflicts among heirs and stakeholders?
-- Does your family have a shared vision for the future of the business?

Board and advisory oversight:
-- Are you leveraging independent advisors to bring objectivity to critical decisions?
-- Have you established a board that includes both family and non-family members?
-- Are decision-making protocols clearly defined to avoid bottlenecks?

Action point: Effective governance structures prevent costly disputes and ensure smooth transitions. Schedule a consultation with me to review and enhance your governance framework.

3. Flexibility: Can you adapt to changing circumstances?
The ability to pivot and adapt is vital for the longevity of any business, especially in uncertain times.

Plan adaptability:
-- Are there contingencies for unexpected events, such as sudden illness or market downturns?
-- Is your current plan flexible enough to accommodate changes in tax laws or market conditions?
-- Can your business adjust to shifts in family dynamics or new leadership styles?

Innovative strategies:
-- Are you open to exploring new business models, partnerships, or strategic pivots?
-- Have you considered diversifying your investments to reduce risk?
-- Is your plan designed to balance tradition with innovation, allowing the next generation to make their mark?

Action point: A rigid plan can quickly become obsolete in a fast-changing world. Contact me to discuss how you can build more flexibility into your succession planning strategy.

Taking the next step
The sanity check above is designed to highlight potential vulnerabilities in your current strategy. Addressing these areas can help secure your business’s legacy while positioning it for future growth. However, navigating the complexities of family business succession requires more than just a checklist – it demands a tailored approach that takes your unique circumstances into account.

If any of these questions resonate with you, talk to an estate planning advisor. Seek out those advisors who specialize in helping business owners like you to achieve their goals while minimizing risks. Contact me for a personalized review of your current plans and actionable advice on how to strengthen your business’s future.