recognising the opportunities when advising family businesses

© Wright, Johnston & Mackenzie LLP 2013

Recognising the opportunities when advising Family Businesses

Liam Entwistle 14th November 2013

Objectives for this evening

• Develop a “family business perspective” in addition to your

“business adviser perspective”

• Develop an understanding of the challenges family businesses

face


The “One-Circle” Model


The Family Business System

Family Business

Emotional

Inward

Little change

Facts Profits

Outward

Fast change

This is where it gets interesting!


The 3-Circles Model

Family Business

1

2

3

4 5

6

Ownership

78


Segment 1 – Family Members

Family Business

1

2

3

4 5

6

Ownership

78

Family Members Family life in

balance withbusiness

Job prospects Future ownership Wealth Family harmony


Segment 2 – Non-family investors

Family Business

1

2

3

4 5

6

Ownership

78

Non-family investors Return on investment Dividends / profit share Liquidity Exit route Information

Segment 3 – Non-family employees

Family Business

1 34 5

6

Ownership

78

2

Non-family employees Job security Strategic direction Family influence

on reward Effects of nepotism


Segment 4 – Family Owners

Family Business

1

2

3

4 5

6

Ownership

78

Family Owners Same as non-

family owners Info about job

prospects More ownership

in the future


Segment 5 – Non-family working owners

Family Business

1

2

3

4 56

Ownership

78

Non-family working ownersAs for 2 and 3:- Return on investment Dividend / profit share Liquidity policy Exit route Job security Strategic direction Family influence Nepotism


Segment 6 – Family Employees

Family Business

1

2

3

4 5

6

Ownership

78

Family Employees Same as non-

family employees Info about

ownership, career andsuccessionprospects


Segment 7 – Working family owners

Family Business

1

2

3

4 5

6

Ownership

78

Working family owners

All of the above!


Segment 8 – Family owners and business leaders

Family Business

1

2

3

4 5

6

Ownership

87

Family owners andbusiness leaders

All of the above,plus

Managing conflictsof interest

Focus on vision Not becoming isolated


Conflict is unremarkable


They're playing at Family Boardrooms….

How family businesses develop,and how you can be there for

them


The 3-Circles Model

Family Business

1

2

3

4 5

6

Ownership

78


Time changes everything!- crossing boundaries

Family Business

1

2

3

4 5

6

Ownership

78


Succession Options

What would the senior generation prefer?

1. Appoint Family member

2. Appoint caretaker manager

3. Appoint professional manager

4. Liquidate the business

5. Sell the business

6. Do nothing

Succession options


EstateEstatePlanPlan

Capitalisationof Business

Tax PlanTax Plan Business Plan

RetirementRetirementLeadershipDevelopment

Career Development

WillsWills

OwnershipSuccession

Business

Family

The Succession Conspiracy

Quality of LifeQuality of Life


The “Do Nothing” Option !

• The least logical

• The most costly

• The most destructive

Yet sadly

• By far and away the most popular


Where do Solicitors fit in?•The issues of conflict of interest

• “The Lawyer” reaction to problem solving

• Being first among advisers, and at the heart of the solution


The role of Trusted Advisor

•Recognised as independent by all the family

•Proactively encourages the family to “get organised”

•Invests time to understand the issues

•Recognises when specialist Family Business Advice is needed


Where specialist advice is likely to be required 2nd Generation onwards

• Succession planning • Wills, tax advice, Powers of Attorney, estate planning, wealth

planning, trust creation and administration, Family partnerships• Ownership, Governance & Management

• Articles of Association, Shareholders agreements• Constructing effective Boards

• Effective use of Non Exec Directors

• Managing branch politics


Where specialist advice is likely to be required 2nd Generation onwards

• Managing Conflict in a family business• Mediation

• Employing and remunerating Family and non Family

• Dividend policy vs executive bonus

• Communicating between Board & Family

• Interpreting and implementing a Family Constitution

• Family councils


Opportunities for Solicitors?

•Develop the skills and knowledge required to TRULY understand your client (the family enterprise)

•Invest time with your client to gain that understanding and in the process become the TRUSTED ADVISOR

•Help the client understand the predictable issues heading their way and persuade them to create a blueprint for tackling them

•Profit from the legal work that will flow from the business and the family

•Collaborate with other advisers to help the client



Recognising the opportunities when advising Family Businesses

Liam Entwistle 14th November 2013

recognising the opportunities when advising family businesses

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