The size and complexity of your business and family offices, the skills of your finance team, and a desire to protect your privacy can all help determine whether your business and family offices needs separate financial leadership.
A shared responsibility can result in the company and family being well-served by a unified approach in some situations, while potentially causing challenges for both in others.
The Benefits of Sharing a CFO
In many situations, the business and the family offices share a chief financial officer. For example, the business CFO will typically have an intimate understanding of the company’s finances and their role in generating wealth for the shareholders. This will likely lead to insights into the potential effects of family office investments and other decisions on the company’s financial assets (and vice versa).
Similarly, a long-serving business CFO may enjoy significant trust from the family principles. By understanding their tolerance of risk, investing style and preferences, and their personalities, the business CFO can oversee the family finances effectively.
Entrusting a finance professional with oversight over the business and the family offices can also reduce administrative costs paid separately by the family.
This shared responsibility arrangement is typically most effective during the growth stages of the business while the family is building wealth. It’s also best suited for families with relatively straightforward investment and tax strategies that don’t require specialized expertise to evaluate or monitor.
The Potential Drawbacks of Sharing a CFO
On the other hand, significant challenges can make separating the company and family finances a prudent strategy.
Sometimes, the business CFO may be too immersed in the company’s finances to offer objective advice to the family. For example, it may be in the family’s interest to remove some assets from the business to diversify their investments. However, if doing so would pressure the company’s cash management requirements, the CFO may advise against diversification to avoid extra work or other complications at the business.
More mundanely, a busy CFO may not have the time to give the family’s financial position the time and attention it requires.
In addition, a CFO with experience in the company and its industry may not have similar expertise in the proposed investments and may be unable to provide informed advice on the suitability of the investment for the family.
Additional Considerations
Family Privacy
Another potential challenge is privacy. The family may prefer to maintain the privacy of their financial situation. Some business owners, understandably, may not want company employees to know their spending and investment plans outside the company.
For instance, it can cause hard feelings and resentment when the family makes difficult decisions at the business, such as cutting staff or salaries, without making similar cutbacks in their personal spending. That’s their right, but it can still cause issues among the company’s financial staff.
Tax Implications
Company owners must also understand the potential tax implications of blending the business and family’s financial leadership. There are ways to create a tax-deductible family office under very specific facts and circumstances — but without this structure, the cost of time spent by the CFO or other accounting staff outside the company may be non-deductible.
Family Dynamics
Another circumstance to consider is the CFO’s willingness to be involved in potentially complex or awkward family situations. For instance, if there are disagreements among family members about investment or spending, or questions about investment returns, the CFO may prefer not to be involved. Working with various family members within the business itself may be challenging enough without adding family office responsibilities to the mix
Situations and Needs Vary
Because each family’s situation is unique, it’s important to craft the best structure to support the company’s and the family’s needs. For some families, this may mean combining the roles and adding outsourced services such as bill pay and investment management. Others may wish to separate the roles or find a combination of expertise and services best suited for their situation.
If you would like assistance reviewing your current situation and implementing a roadmap to meet your family’s goals, schedule an introductory call with our team.