Persons who are highly successful in business, often find difficulties in managing their individual family finance and investment proposals. This issue is directly linked to family succession plan and distributing the wealth among family members who are typically spouse and children and their spouses

What are the challenges?

1.     How to involve family members in decision-making? (especially for investment proposals)

2.     How to manage the family fund and cash flow projections

3.     How to define the duties and responsibilities of family members who are involved in the business?

4.     How to fix remuneration, allowances, and benefits for the working family members (especially among male and female members, sons-in-law, daughters-in-law)?

5.     While doing investment (buying assets or starting a business) in whose name the investment to be made (very critical)

6.     In case of differences of opinion among family members, how to come to a consensus? (most difficult question)

Finally, the most critical part……….. what should be a succession plan that is acceptable to all?

What is the solution?

To start with a family governance plan

Family Governance plan is similar to Memorandum of Association and Articles of Association of the company that defines the scope of the business, defines roles and responsibilities, and fixes the equity ratio and profit ratio.

Can the Equity (share in the Net worth) and profit-sharing (returns) be different?

Yes of course. In corporates, the working partners get remuneration and perquisites. Same way, the working family members get an additional share, while equity share depends on various factors often governed by religious principles (like Sharia)

  Role of a CFO

Consider the above-listed challenges.

A CFO should a person who should be not only confidential but should be strong enough to enforce family governance

1.     Doing a feasibility study of an investment or business proposal and giving an independent/unbiased opinion. A proper feasibility study can sometimes save your millions and also gives an opportunity to all the family members to get insights into the proposal and also helps in getting consensus.

2.     Vetting of any commercial proposal

3.     Have cashflow projections to take care of financial needs from time to time

4.     Helping in drafting family governance plan that defines duties, responsibilities, allowances for family members

5.     Generate ‘Financial statements’ for the family (Net worth position, Receipts and payments, and profit or loss from investments)

6.     Conduct family meetings (similar to Board meetings) with family members.

7.     Record minutes of meeting

8.     Help in drafting a will or a succession plan