Why Family-Owned Businesses Need Specialized CFO Services

In such strictly hierarchical family units, it is uncommon to see non-family employees in leadership or management roles such as CEO, COO or CFO

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India ranks third globally in terms of number of family owned businesses after China and the US,  and according to PwC India’s Family Business Survey, the growth of the country’s family-owned businesses continue to thrive and perform better than the global average. Most family-run businesses in India, whether small or medium-sized, are usually controlled by tightly-knit family structures wherein business control is passed down from one generation to the next.

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In such strictly hierarchical family units, it is uncommon to see non-family employees in leadership or management roles such as CEO, COO or CFO. This is because as long as family ventures remain profitable, they don’t see any visible benefit in getting an outside CFO; many fear a loss of independence and control in making such a move. Additionally, in current times, having a family CFO is a wise decision since the second and third generation may have varied business interests compared with parents, hence, there may be situations where the family business may enter into a joint venture with a new partner, go through a merger, acquisition or a sale. The presence of a CFO in scenarios like these can be a boon to creating a sustainable approach towards family and business legacy.

With the ever-changing business approach of younger generations, there is a growing need for family-owned businesses to open up to the idea of having specialized CFO services on board.

Strategic planning 

An air-tight strategic plan is essential for any company, whether small or large, as it can inform a business owner’s decision about what to do with their company. A strategic plan that spells out the future and vision of a company has to take into consideration several variables and professional CFOs are wired to do this. A CFO will draw out a strategic business plan by trying to understand the financial needs of a business-owning family and assess the resources that the family has outside the business. A CFO will also assess whether a business-owning family has sufficient assets and cash flows to meet their long-term financial goals. 

Succession planning

Scores of family-owned businesses do not prepare for unexpected events such as the demise of a CEO or other company heads. A lack of planning surrounding succession can often put hard-earned family wealth in danger and in worst case scenarios, lead to the demise of a company. A CFO who has years of industry experience in leadership and management roles and is not a part of the family, can often lend an impartial eye to matters of succession and play a crucial role in advising the owner of a company on the need for succession planning. 

Strong internal financial processes

Having strong financial processes is necessary for any family-owned enterprise to thrive in a competitive market environment. Whether it is managing cash flow or looking after the company’s banking needs and timely bill payments, CFOs can bring in an all-round financial discipline to a family-run enterprise that might often not be in the habit of maintaining formal digital records. Well-trained CFOs can help a business maintain thorough financials and ensure robust MIS—a crucial requirement during auditing and inspection processes. 

Tax and compliance regulations

Although tax calculations and filing are the responsibility of an external auditing firm, a company should always maintain their own internal records that are systematically filed, a lot of family-owned businesses might not be able to do this. A qualified CFO can help get on top of all such matters by building a comprehensive internal record-maintenance system. A CFO will also work in collaboration with auditors/chartered accountants to ensure that a family-owned company gets all the right information about meeting tax obligations and other compliance regulations. 

Managing external relations 

Very often, family-owned businesses can be stretched thin and may not have too many managerial level resources. A CFO can step in here to manage a company’s relations with external vendors, bankers, auditors, and other external stakeholders. In addition to this, CFOs, backed with their extensive networks in the financial world, can also help a small-scale family company scout for new investors. 

The employment of specialized CFO services for family-owned companies is thus recommended as it can help a company streamline its processes and be risk-aware. Getting a CFO on board is also much easier a process today as outsourcing is a viable option. Outsourcing CFO services can provide a family-owned company with all the benefits of a full-time CFO at a much-reduced cost. Also, an outsourced CFO’s knowledge spans across multiple industries and hence, this can be an added advantage for a family-run business whose network might be confined. 

Rajmohan Krishnan

Written By

Rajmohan Krishnan leads the team of Entrustians with his relationship-centric service mindset and uncompromising professionalism, which has established Entrust as a pioneer in the pure breed Family Office space. With his deep understanding of the financial services industry and over two decades of advisory experience across a wide spectrum like Real Estate, Business Succession, Estate Planning and Social enterprises Investments etc, Raj is one of the most renowned Family Office advisors in the country.