Advisors serving family businesses face specific challenges and are presented with equally distinct opportunities created by the unique dynamics of these relationships.

In fact, family business advisors Josh Baron and Rob Lachenauer point out that there are actually three relationships within the advisor-family business construct: family, business and owner, with complexities between the three at play in nearly every significant business decision.

And advisors to family businesses find themselves in the singular position of being intimately familiar with both the business and the family, but with a critical outside perspective and no stake in the emotional conflicts that can arise as the result of business or family decision-making.

While there are certainly parallels between serving family business owners and serving the owners of non-family businesses, advisors to the former should always keep in mind that no business or family change or decision can be made without affecting the entire ecosystem. 

There are no siloes when it comes to giving financial advice to family business owners in pursuit of business success, family wealth and well-being and long-term financial goals.

For advisors, this is an opportunity couched in a complicated challenge. After all, the more layers to an advisor-client relationship, the stickier that relationship becomes. Advisors to family businesses could conceivably serve both the business and the family through multiple generations as long as they’re willing to navigate the intricate landscape we’ve just described.

Of course, each relationship, business, family and advisor is different – but keeping these three guidelines in mind can help you maintain successful, long-term relationships with family business owners, their children and other family members, and the business itself.

Ensure Proper Protection is in Place. When it comes to family businesses, protecting the family and protecting the business go hand-in-hand. Every business owner should have adequate insurance, but for family businesses, the stakes are even higher. 

And while this may seem obvious, research shows that 40% of small business owners have no insurance, and 75% are underinsured, leaving both the family and the business vulnerable to financial and reputational risk that could affect short- and long-term goals, from college savings to retirement.

Talk to your family business owner clients about the importance of not just life insurance, but also of policies that protect the future of the business, like buy/sell insurance and key person insurance, as well as liability coverages. 

Develop a Succession Plan Early. Most business owners, family-run or not, are hesitant to discuss succession planning, which is the process of creating the roadmap business owners will follow to retire, sell their company, pass the business down to younger generations, or otherwise pass on control of the day-to-day operations. 

In fact, only 18% of business owners have a documented succession plan in place. Succession planning, wrought with emotion for almost all business owners, can become increasingly complicated for owners of family businesses, particularly if they anticipate conflict or disagreement from family members about what the future of the business should look like. 

Research shows that while 60-70% of small business owners wish to pass along their businesses to the next generation of family members, only about 15% actually do. The disconnect, says Eido Walny, founder of Walny Legal Group, comes from a lack of succession planning. 

By starting the succession planning conversation with your family business owner clients well in advance of the actually succession taking place, you give both the current and future owners time to prepare for what the transition should look like, establish goals for both the plan and the future of the business, implement any necessary training and work through potential emotional conflicts that may arise when the business successor (or successors) is named.

Importantly, the children of the current family business owner may not be the best choice to assume control of the business when the owner is ready to retire, either because they simply don’t want to, they don’t have the skills required to run the business, or an employee outside of the family is better equipped to do so. 

Jerry Davidse, CEO of Presilium Private Wealth, points out: “Family businesses should not always stay within the family. Each generation is going to have different talents and interests. They may or may not be ideal for the current state of a family business. It is so important to have regular family meetings where this is discussed and planned for over time.”

Regularly checking in with the business owner about their succession plan will help you and your client get ahead of any potential disconnects between what they want and what their children want, while allowing for adjustments to be made that suit the family, the business and the owner.

Use Business Valuation as a Consistent Checkpoint. This is advice that applies to all business owners, but especially to those with family-run businesses, since even decisions made outside the business can affect the health and value of the business itself. 

Establishing a regular cadence of business value review with your clients, at least yearly if not more often, will help ensure that their insurance coverage is still adequate and their business is tracking toward established goals in spite of any changes that may have occurred, or indicate that they need to take action to right side profitability, revenue, debt reduction, etc. 

Business valuation is also a powerful tool for defining a succession plan’s timeline and making adjustments to it as necessary, especially regarding the impact of the current owner’s departure. For example, if the business value is where it should be and would remain largely unaffected by the owner passing on control, your client could think about moving up his or her retirement timeline and starting the transition process earlier. 

Using BizEquity’s business valuation software, you can easily and efficiently run business valuations for your business owner clients while tracking business performance year over year and estimating the potential impact of the owner’s departure on the business. 

Click here to learn more about how BizEquity can help you more effectively serve family business owners and capitalize on the opportunities these unique relationships present.