What we do

What does it mean for business families to ‘transition their capital’ to future generations?

Family capital comes in two primary forms.

  • Financial capital is money and wealth. It enables the business and the family to not only meet its financial obligations as they arise, but also to continue to grow and endure over time.
  • Human capital is wisdom, knowledge and experience. This is culture, “how we do things around here,” the values of the family and the business. It’s the glue that bonds the family and the business together.

Our experience with Canada’s most accomplished business families is that an effective “transition” plan addresses both the financial and human capital – not one at the expense of the other.

We call this dual approach – the financial and human capital – the ‘business of the family.’

Why is liquidity important? And why are many families facing a liquidity challenge?

Liquidity mean having access to cash when you need it most.

In our experience, families need cash to fund three primary obligations:

  1. Taxes – capital gains and inter-generational transfers on the death of a founder or principal
  2. Owner / shareholder buyouts
  3. Financial security programs for spouses

 

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Understanding the various funding options is critical in meeting each family’s liquidity needs.

We help families with evaluating and modeling liquidity plans that support transitioning their financial capital – having access to cash needed to pay big financial obligations in the future.   Various financial requirements – like estate taxes and buyouts within the family – can stress the business if they’re not sufficiently prepared for.

We specifically help families and their advisors in:

  • evaluating the liquidity requirements of owners
  • ensuring sufficient cash is available for estate taxes, family exits and buyouts
  • comparing all financial alternatives (including outside options) to fund the plan and secure the family’s goals
  • identifying the least costly solutions, while preserving as much capital as possible for the growth of the business
  • keeping tabs on the ‘liquidity plan’ over time to ensure it’s working

 

HERE’S AN EXAMPLE OF HOW IT WORKS.

What does insurance have to do with all of this?

Insurance is a funding option that families often overlook – or don’t even know about – in transitioning their financial capital.  It creates instant cash and liquidity so that the family’s assets can continue to be used and managed effectively.

Most importantly, life insurance is tax-efficient and can significantly reduce the funding costs of the liquidity plan.

Implementing  a customized insurance strategy involves:

  • collaborating with the family and their advisors to co-design the best funding plan
  • creating a flexible plan that can adapt to changing circumstances
  • negotiating the best possible terms and capacity with insurers
  • ensuring the family understands how the insurance works – and how it can change with their needs

Paying attention to the ‘human capital’ is equally important.

Is the family clear on where it’s going, what the estate plan is, why it makes sense?  Do they understand it and commit to it?  Are they engaged in it?  Is everyone aligned and connected on the bigger picture?

Paying attention to these essential ingredients offers an ‘extra lift’ to the family by connecting their human capital (people and relationships) with their financial capital (money) and ensuring both are transitioned effectively.

CMG’s Family Consulting Services helps families to:

  • understand the family’s vision for the future
  • identify rules and structures that govern the family’s ownership plan
  • support trust and communication within the family in order to engage and prepare the next generation – and have family members aligned with the plan
  • work through any family complexities that threaten succession – and build a plan to transfer wisdom, knowledge and experience to successors
  • ensure the family’s advisory team is well connected to the vision and plan

HERE’S SOME FURTHER THINKING.

We're solely focused on the business of the family.

Over time we’ve come to see that weaving together the family’s liquidity needs with the people and relationships in the family enhances the likelihood of transition success.

Too often the plan focuses only on the money, but our experience has shown that families need a plan and a vision – as well as engagement by family members and their advisors – in order to transition their capital effectively.  It enables the business family to prosper and endure.

This is the true meaning of the ‘business of the family.’

It has been our focus for more than 30 years.

 

READ CMG’s RESEARCH ON BUSINESS FAMILIES.