Common Risks Faced by Business Families

Watch Patricia Annino, a family business lawyer specialized in estate planning, describe various types of risks facing business families and ways to address them. In a family business, it is common to face traditional business risks, however, it is the family risks, like succession planning and divorce, that are the most serious. It is vital to be aware of family risks and to plan how to deal with them before they arise.

The unique challenges to the family business are on the family side, not the business side. What are the risks to family business success today? Some of them are the traditional risks – the financial risk, regulation risk, tax risk, all of those external forces. But the biggest risks to the family business are the succession risks. Are you honestly evaluating who’s going to be in charge and what those consequences are, and I think what I call the family predator risk - that a child or grandchild may end up getting divorced and jeopardizing the value of the family interests. And in some instances you know what a child owns or will receive is divisible in divorce, with an increasing worldwide divorce rate, how do you deal with the family predators in this kind of a situation in addition to all of the creditors that your typical, and risks that your typical business, family or not, would end up facing? Another risk that’s coming on board for the family business is reputation risk. It’s all the social networking and everything going on there. If you have you know the errant granddaughter who’s running around doing things that might not be what you would consider to be family issues, probably you know 20 years old doesn’t have a clue that that will never go away, that once that goes onto the Internet, it’s going to be there forever, or that it would impact her ability to be a CEO or in a leadership position later, or the family. So I think education about those risks, and dealing with it is is important. You do a risk audit and understand and make it very clear at the beginning that this is a process that wont end for you. So you’ve got to look at this as one of the risks that your dealing with like everything else. You pay your insurance, property and casualty insurance, every single year. It’s a process, you look at it that’s how you can see issues and stop them and deal with them and honestly assess them.