Podcast: Transitioning Business Wealth to Liquid Wealth

By Noah Rosenfarb
Published: December 13, 2015 | Last updated: March 22, 2024
Key Takeaways

In this podcast, Lisa Gray, founder of Graymatter Strategies LLC, explores how family businesses can prepare emotionally and financially for the transition from earning money in their business to having liquid wealth.


In this session you will learn about:

  • Ways you can prepare emotionally and financially for earning money;
  • Strategies that the wealthy use to minimize their taxes;
  • What you should look for in your “money person”;
  • The differences between brokerage firms, RIA firms, family offices and the other people out there advising clients about investments; and
  • How you can avoid Ponzi schemes and other investment frauds.

About the Guest

Lisa Gray is the founder and managing member of Graymatter Strategies LLC. Having 21 years of experience in the wealth management industry, Ms. Gray consults with domestic and international families and their advisors on the direct influence of generational perspectives, family dynamics, and governance on wealth management decisions.

Based on her experience in working with clients of wealth, combined with her research and consulting experience through Graymatter, she developed the proprietary diagnostic Wealth Optimization Consulting™ model of service presented in her first book, “The New Family Office: Innovative Strategies for Consulting to the Affluent,” published by Euromoney Books in 2004. The concept more accurately guides families and their advisors on the journey toward optimality in their relationships as well as in wealth management.


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Read the Full Transcript Here:

Noah Rosenfarb: I’m so glad to have with us today Lisa Gray, the managing member and founder of Graymatter Strategies. She’s been the author of two books; the New Family Office and Generational Wealth Management but more importantly, her firm provides advice to multigenerational families of wealth. She helps them get to the heart of their issues and guides them to their own solution or expertise. Recognized around the country and we’re glad to have today. Lisa, thanks for joining us.


Lisa Gray: No, I’m very pleased to be here. It’s an honor and I’m very much looking forward to our conversation today.

Noah Rosenfarb: Great. Well let’s get us kicked off with the first question which focuses around how families can prepare emotionally and financially to go from earning money in their business to now having a transfer, whether that’s between family members or to a third party, and that founder or the current owner is going to start spending some of the assets that they have accumulated. What are some of the ways that families could go about preparing for that experience?

Lisa Gray: Well, that’s a great question because it is such a huge shift and I think one part of that shift is the fact that it is a very emotional change. Founders of businesses have spent their entire life working hard to build the business and in these cases it’s been so much more successful possibly than they’ve ever seen and it’s enabled them to do things with their family and have a lifestyle that has just been wonderful. So a wonderful gift to the family and when you go out from having a change in form of the wealth from an offering wealth to liquid wealth. It introduces a lot of concerns, a lot of risks, and in addition to the fact that maybe the wealth is not going to be growing the way it once was in the business. Part of that are also a factor and the timing of selling the business because quite honestly, sometimes businesses need to be sold before they have an emotional attachment. So I would say that the critical thing in this type of planning is starting it early. You have to really be honest about what’s going on in your business. You have to really understand that even though there’s this emotional connection, it is a business and it is a mechanism for wealth creation and understanding that proper time to make a shift from that form of wealth to possibly another form of wealth is critical.

Inner aspects of this are to realize that this is not happening just to one member of the family. This is a matter that a family decision; this is having implications on the entire family way of life, all of the obligations that they might have, their access to those funds. So you have a lot of risks and individuals thinking that they can just have more access to funds and the founders become fearful that that money is just going to be wasted away. You have a lot of emotional elements in coming in to this decision; a lot of values, concern that maybe the next generations don’t have the same values as the first generation. So going back to the initial response in understanding that this is a family thing, this is something that needs to be planned for in advance. And I guess one of the mistakes I see is that people don’t plan for it far enough in advance and then they have these types of decisions to make. They don’t understand what’s going on in their family. They don’t know the values that other family members have. So they really can’t make the best decisions. They end up assuming a lot of things about other family members which may or may not be true. So things get set up at this family business or the wealth changes form from an operating company to a liquid or a definite portfolio that really can affect the long term success of the family. So I think in talking about this kind of shift, there are a lot of basic foundational elements that need to get addressed and one of the best ways to do that is actually do an analysis of the family.

I like to show families that their wealth really doesn’t consist just of the family business. There’s a whole sector of wealth in the intellectual, human and social capacities of family members that often goes totally unrecognized or even if people are aware of it. It’s kind of ignored. So this wealth can also be developed. So when you’re talking about an exit strategy for a business, you end up thinking that there’s going to be this one single pool of wealth and then you have this situation where you’re expecting that one pool of wealth to sustain the family going forward and you have new generations being born all the time and you have other people needing to benefit from this wealth and so it becomes a matter of how do we make this wealth last for not only our own benefit for this retiring family member or just the shifting in activity. Folks in common, you know, running a business to either retiring or it maybe even turning one hobby into another. So many elements here but one of the first things to do is to understand that there need to be some growth going on. Just because you’re exiting a business does not mean that you can entirely turn your focus to wealth utilization or distribution. I’ve heard so many people at wealth management conferences encompass advice to advisers, “Okay, you have to shift you’re entire strategy to distributing wealth.” Retirement has gone these days from maybe a 10 to 15-year expectation where you really wind down your life to a very active scenario that can last almost another lifetime; 25, 30 years is a long time to be out there and if you’re simply focusing on distribution, you may end up running out of money beforehand. If not, you’re still going to be a stiff drag on the family wealth so that future generations are not going to have as much benefit from that. I’ve heard so many clients who really blow their wealth once it becomes liquid or think that they can make their wealth last longer than they can or that they can do more with that wealth than they originally can. So they failed to have this reality check. They don’t understand the rate with spending their money and they don’t have a real solid grasp on what their situation really looks like. If you don’t have that, you really can’t manage it very well.

So our process is to have families getting to the heart of these issues. Number one, it examines very closely this emotional connection to the business. How can we step away if emotional connection, how can we preserve the value and the meaning of what this person has built while at the same time shifting the form of wealth in a way that it’s not only going to move to sustain this family member but sustain the family in general for one generation after the next. So that’s a daunting task. But the first analysis of saying, “Okay, what have we really done here”, the fact of the matter is this is an asset that can never really be taken away from the family. This business that has been developed that has turned the wealth from an intellectual, human and social form into a tangible form of a material and financial asset. It’s something that is always going to be with that family whether the business is sold, whether the business is taken over by another family member where the partners, external partners are brought in, whatever the situation. That business is something that this person built and gave to the family and that is something that can never ever be taken away. That is the family’s legacy, that is the family’s story, and that is a story that can be told generation after generation after generation. So what’s important to recognize is number one, what that emotional attachment looks like, how do we preserve that, and how do we honor the work that’s important to this business to make it the success that it’s been made. And secondly, what other wealth does the family have to draw on?

It continues to grow the wealth so that this wealth, this original pool of wealth can be continually contributed to and continue to benefit generations farther down the line. So when we do an analysis, we also have to look at attitudes towards wealth. We have to look at generational perspective or how different people in the family view the world because the fact is that the generation that built this business grew up in an entirely different social and economic backdrop than future generations will. So I find often that family patriarchs expect the next generation to just fully adopt their values and that’s an impossibility. They also expect to be able to have control over how that next generation spends money. And that is also impossible. Control is an illusion and people want it but they failed to realize that any effort to control people sets up a rebellion in the people that are trying to be controlled. So I think a much better approach is to number one, understand at this point of exit what does our real wealth scenario look like, what is our complete portfolio of assets. It’s not just the business. If that business is going to change shape, that wealth is going to change form. What other types of wealth do we have in the business and how is that changing form of the wealth created by the business going to a fact of the development of that other wealth that we have, that we need to develop and use. So the whole shift focuses on the business to all of these other multidimensional practices and to understand what’s being required of you in managing that situation. You also need to understand the types of support systems that are successful. And note this is a wonderful time in the life of family wealth success because it’s an opportunity for family members to become involved in decisions that are made about the wealth. It’s an opportunity for families to decide what they’re focus is going to be about the wealth, what their long lasting legacy is going to be from the business. So there’s just a plethora of opportunities here and when families wait to implement these strategies or even try to design these strategies, they often end up making decisions that really are ineffective and may work in a short term that really inhibits wealth going forward and you just can’t afford from two perspective: number one, the longevity perspective and number two, the slice and dice effect of increasing numbers of family members. You can’t afford to just focus on with this part. So I think the values and attitudes about the money; understanding that different generations are going to have different ways of looking at wealth and what it can do for them; and also the need for education of family members now that this wealth is in a liquid form; the dangers of wealth; what wealth can do to your life as well as what wealth can do for your life; becoming wealth responsible, wealth earners, dynamic owners who are involved instead of just sitting there getting a passive dividend check, all of these things are elements.

Noah Rosenfarb: I wanted to pick up on something that you said which is control leads to rebellion and this responsibility of now perhaps liquid family wealth being different than owning a business, an operating business which has great cash flow but now having the liquidity that changes the dynamics. Families that I talk to, one of the things that they’re concerned about is this inflow of liquid capital can produce negative results for their relationships with their children, all the dynamics that go around with it. What advice do you have for families that share that concern that this influx of capital, they’re not sure that they might recognize control would lead to rebellion but the opposite is they’re not sure what the outcome is going to look like.

Lisa Gray: Well, that’s a great question, Noah because this really brings me to the heart of our processes and our research that we’ve done and developed at Graymatter because the reason we focus so intently on generational perspective is this very factor. People who are so afraid of the negative consequences of having liquid wealth end up not talking to their family members, not knowing how other family members view wealth, automatically assuming that their children that they have raised are incapable of making responsible decisions about that wealth, and when you fail to empower other family members, you automatically make them feel that their opinions don’t count, that they have no say over their own life, that the way their life is going to be scripted is going to be according to your wishes, not theirs and the lack of conversation that results from this type of event is astounding because what happens is the wealth creators will say, end up thinking that they’re the ones who created the wealth, this money is ours, and it’s up to us to decide what to do with it. And on the surface level that might seem to be true.

Let’s go back a little bit and think about how we were when we were single. When we were single, our only responsibility basically was ourselves. We didn’t have families to think about, we didn’t have a spouse to worry about, and everything we did primarily affected us and not many other people. But let’s say we decide one day to have a partner or a life partner or get married, that focus automatically changes because what happens for us automatically affects what happens with someone else. They automatically affect someone else’s life. That comes into play even more when we decide to have children because everything that happens to us is going to affect the quality of our children’s lives.

So this money that we make, we have children and we have a spouse and we bring these children up in a lifestyle that is wealthy and privileged or let’s say we don’t do that and we try to hide the wealth from them. Well, they’re not stupid. They’re individual people with brains who learn to think for themselves regardless of our effort and if they’re going figure out about the wealth or like Jamie Johnson did, find out about it on the internet which is an increasing possibility these days. So you’re not kidding anyone. It’s much, much better to just say, “Okay, look. This is what we have and this is how we need to be thinking about it.” They’re going to ask you questions.

The generational perspective that one generation has towards the wealth particularly the wealth creators aren’t going to be different that the use of the wealth are going to be different from any other generation in that family and it is the height of hubris to think that we are the ones that need to be making decisions on behalf of other people’s lives. If you go back to the way your country was founded and you go back to the premise that everybody has the right to pursue happiness.

If you go back and read that, it says that if you try to have control of another person that negates that freedom of happiness pursuit. So we all want the best for our families, we all want what’s best for them and that’s a noble thing but automatically assume someone is incapable of making wise decisions about money is a travesty and it is a denial of that person’s ability to be a responsible wealth owner. So what I advocate instead is let’s talk to our generations in our family, let’s talk to our children and see what they think about wealth, let’s make them apprentices early on and help them make decisions on their own within the safety net of our experience and our knowledge and what we want to have happens then; our best interest, the things that we hope that they will achieve with their lives. We hope they will achieve on them without asking them what they want to achieve.

Jay Hughes, a well-known guru in this industry says that a moment a child is born, it is the parent’s duty to say how can I help you achieve what you were meant to achieve in this life but instead we assume that we know what these children are to achieve and we try to control the money in a way that distorts our vision of what their lives should be like instead of what they want their life to be like but this is not saying that children should have pre-reign or other family members should just be allowed to blow through the money. That’s not saying this at all. It means that we should become active participants in preparing the next generation to be responsible wealth owners, to be active in these decisions, and it’s just like running a company when you have fresh ideas coming in to the company. That keeps that company alive, it keeps the business vibrant, it helps the company and the business model shift to the current marketplace so that the business continues to strive and to grow instead of doing things the way they were always done for the sake of doing it the way it was always done and that business climbing in to a deep dark hole of an ivory tower like IBM did back in the mid 90s. So that’s what causes the value of company to decline.

So it’s the same with our family and it continually surprises me how these wonderful masters of businesses don’t apply the same principle to their families and understand that new ideas from family members can develop into the wealth too and that it should be a family process. So coming back to whose wealth it is, it really is the family’s wealth. It really becomes the family’s wealth at that point and if you want to have the greatest influence over how that wealth is managed after you’re gone, then you will apprentice your young people, you will apprentice new leaders to be responsible owners. In that way, when you’re not trying to control people, they’re going to be much more open into listening to what you have to say and you’re going to have a much greater chance of them parting your values and telling family stories and passing those values along in a way that they’re going to be reinterpreted and adopted through sets of generations that if you try to plant down and put limits and control things without asking other family members into it.

Noah Rosenfarb: So aside from apprenticing new leaders as a way to share values and create continuity and hopefully have parents that have confidence in their children’s capabilities, what are the other things that you think families of wealth should be doing to maintain harmony? Can you share some other strategies that you think would be helpful?

Lisa Gray: I think maintaining a harmony really comes from a shift in the attitude of the wealth creators. When you get to the point where a family is exiting a business, you really have to change gears and that’s very, very difficult. I think it requires just kind of a reevaluation or redefinition of the role that you need to be playing because the role of founders is one of creating the wealth and developing strategies that are going to help this business grow and develop and you’ve created this big pool of money and now you’re changing format. So as the form of the wealth changes, the role of the founder also has to change.

When you own a business and you’ve created a pocket of wealth, you have become a leader of your family and apprenticing new leaders, the greatest role for that leader that built the wealth is to become an educator and a mentor for those apprentices. So when you are trying to create harmony, you have to be able to communicate well, and communication and the way your family interacts together is what make up what are called family dynamics and family dynamics emanates from the different generational perspective that are at work in the family. So when you don’t have an understanding of what those perspectives are, it’s very difficult to communicate with your other family members because something that you say maybe completely misinterpreted by another family member simply because of their perspective on life which comes when they grew up and their personalities formed and their view of the world formed between ages fourteen and seventeen. This is a permanent imprint and in his writings in the mid 60s and early 70s, noted that this imprint is so strong, it so permanent that the rest of your life can negate this. Every influence you come up against can negate that and that imprint, that natural frame of reference will automatically still be reverted to as the primary influence on the decisions that you make.

So as families realize this, this is a tool that families can work with, but we have to know about it, we have to be willing to take a look at it, we also have to be willing to recognize that other people’s views in our family maybe different than ours and that’s not necessarily a bad thing. It can actually help us influence the way the family goes in the future. So creating harmony doesn’t mean that you just have everybody in agreement. It means that you can communicate with each other at a level where it’s okay to disagree, that you respect each other’s opinions, that you respect each other to be his own life, and that comes from getting to know your different perspectives in the family generationally both from an archetypical generational perspective like silent boomers, and also from a chronological perspective from the creation of the money G1, G2, G3 because both of those types of perspectives have a bearing on how the family interacts with each other.

Noah Rosenfarb: So on interacting with G1, G2, G3 and different methods of communication, some people refer to family governance as one of the means to control that flow of communication and help empower people and form these apprenticeship models. Maybe you can just describe your experience in dealing with different families and how they formalize that process of founders becoming educators and mentors; founders taking new leaders that they can apprentice. What does that look like? How would a family go about starting that process?

Lisa Gray: Well, governance is often viewed as a rule book. It’s viewed as kind of a structure that’s imposed on the family to get revived, to shape up and be responsible wealth owners and the important thing about governance is that it really is a living breathing fluid element and it should be designed around the needs of the entities it serves. I made a discovery once. I just thought out of curiosity one day, I will Google the word governance and what came up was fascinating to me because I saw tons of different types of governance. There was electricity governance, there was technology governance, there was corporate governance, civic governance, all these different types of governance and it struck me that governance is not just simply something, a structure that you impose on things. It is designed around the need of the entity it’s serving. So my next thought was what kinds of entities families have and I came up with three basic categories of entities that one of the family itself.

The family is an entity unto itself and as an entity, it has particular needs to develop the innate wealth of the family members, the intellectual, social, and human capacities of the family members and also any other needs that the family has to support its lifestyle, to provide healthcare, whatever else. So that’s one entity. The second entity is the business, the family business. The family business has different needs in the family. The family business needs to generate capital. So you have to have tactical strategies that help that business develop capital; to be able to send that capital back to the family to develop its wealth and supply its daily living needs. The third family entity is the family office or whatever the family has set up as an equivalent. So you have then this flow through mechanism, three-sided mechanism of family governance that has the need and strategy and goals of the family that can only be determined through the family governance system and with the influence of each family member to fight what I was talking in answering the last question. You can’t really design a family governance system unless you know what the needs of the family members really are.

Then the business can be designed to draw off capital to reward shareholders or family members needing the benefit from that capital and family office is the flow through service mechanism to the family that enables that capital to be invested in a way that’s going to sustain the family from here on out and particularly when a family business is being sold or some type of exit strategy is happening. That’s a lot of times when families set up family offices but I think family offices are good entity to have even before then. But getting back to your question about governance, a lot of people think that patriarchal governance system is the way to go where the patriarch sets things up, the patriarch decides what’s going to happen, who’s involved in doing what. The patriarchs will often say, “Okay, X, member of the family, I want you to do this for the family” or “X, member of the family, I want you to do this other role.” That maybe is a good idea theoretically but in practice it often fails because again, you’re not getting the input from the other family members voluntarily.

You’re assigning tasks for them to do and you may or may not be aware of the true wealth that is contained in that family member for that family member’s intellectual, social, and human capacity. So you may have someone who’s very talented at one thing, creating art, and becoming an art curator for the family, enhancing the family’s art portfolio but you’re trying to stick them in an investment management mode or you’re trying to stick them in a profession like being an attorney or a doctor or whatever when that’s just totally a wrong fit but from the patriarch or matriarch’s perspective that’s more of a real job. So if we peel back these assumptions that we have, we can really see what the needs of the family are, what the needs of the business are, what the needs of the family office are going to be after that business is liquidated, how that family office should be set up to serve the family, then we have a real grasp on what governance should look like and how it can effectively serve the family and be an ongoing living breathing mechanism for the family from generation to generation.

So another popular governance form might be what they call kind of a democratic form but here’s the real situation on that. If you make a democracy that has a majority, a majority is 51 percent technically, that means that you’re going to have maybe 49 percent of family members who may or may not be happy with that. When you have disgruntled family members, you really set yourself up for a lot of problems, a lot of risks to the wealth because if you’re not talking to the other family members and you get something passed that you want passed just with a 51 percent majority then you really opened yourself up to a lot of risk to your family wealth and I see families doing this all the time. I see families saying, “Okay, we need to have a family meeting when my kids need to make a decision like X.” And they have a preconceived notion of what that family meeting and how that decision should result. We know what that decision should yield or what that decision should be and what they’re really trying to do is set up a family meeting or family governance system that is going to support their vision of what the family needs rather than providing input and being the fluid governance structure that it needs to be.

Noah Rosenfarb: So I think these are issues that are not easy.

Lisa Gray: No, they’re not.

Noah Rosenfarb: Owners struggle with not only finding the time to plan for this but then implementing plans and balancing what they probably should be doing with what’s more comfortable and I think a lot of that goes back to control and matriarchs and patriarchs feeling that control’s a really comfortable spot for them. So what would you say owners should be doing to make sure that they leave a great, happy, long-lasting and positive legacy behind?

Lisa Gray: Well I think there’s several ways to do that. One is I think they need to recognize that they need help. These are initial issues for family and it’s very, very difficult. I would even venture to say it’s impossible for families to navigate these types of waters on their own and what they need is a completely objective third party with no ties to any other types of things to sell them or strategies to implement but someone who will come in and allow the family to step back and see the larger picture of what’s happening as a family and understand where they really want to go and then be able to help them create steps to get there. And as far as developing a legacy, there’s nothing more important than telling the family stories.

We have a process called storied past that it’s the version of the family’s story from every single family member, young ones to old, and we do that on a regular basis and we create a book for the family that let’s them see how younger generation’s versions of the family story change through the years and also what those younger family members and other family members hear when the stories about how the business was created and the struggles that went on are repeated throughout the different generation. By keeping that story alive, understanding who that family member is, the day that they’re born into this family, what their expectations are as far as responsibilities, it’s like planting a garden. You’re going to put some seeds out into the ground and you can’t just abandon those seeds and expect them to grow. They need water, they need a certain type of food, they need all these nourishment and it has to happen on a regular basis.

So if you want to leave a legacy that’s going to stay and be vibrant and be meaningful to your family throughout the next generation long after you’re gone, this is the type of thing that you have to do. And it’s never too late. You can sit down with family members and say, “Look. We want to get everybody’s input.” And some family members might sit tight and just be very doubtful of that but if you’re consistent in that approach and give them reasons to trust that this is a genuine effort and something you really want to do and for a lot of people, this is very hard because they’re used to being in command of the business and running things and people jumping at whatever they ask them to do and it takes a real shift. So I like to work with family leadership first and get them in a place where they’re ready to make this shift emotionally for themselves then we can spread that out to the family and getting everybody onboard and kind of changing the dynamics and the DNA of that family towards one that’s going to be a legacy building family instead of just a wealth creating operating family.

Noah Rosenfarb: So one of the things that the real families, unfortunately, and it doesn’t happen often but I think it’s a concern for families as they create a significant piece of liquidity are schemes and scammers and partnering with the wrong person that’s going to attempt to take away from the family instead of add to it. Based on your experience, what do you think are some of the ways families can avoid that problem?

Lisa Gray: Well, I think number one, it’s another great reason to get family members involved in the way you create dynamics. They call their owners and to give them something to do and doing due diligence is a great way to do that. I’m a big believer in forming family committees and number one, you have to educate yourself on what you should expect from an adviser. So we have a process that helps families understand the type of due diligence they should be creating before they even set foot in an adviser’s office because there’s a whole piece there that is missing quite often and it’s simply a lack of being educated about what they should be receiving from advisers that the trust factor, people want to trust people so much and I think sometimes especially in situations like Madoff when he had such great strong relationships, he had a glowing resume, he was head of the NASDAQ of all things. So why not trust him?

But it just shows us that we can never ever completely allocate these types of management decisions to someone else no matter how much we trust them. It doesn’t mean that we can’t have things simplified and have someone come in and manage these processes for us but it does mean that we need to keep tabs on what’s going on and be in contact with that person regularly and understand from an investment perspective what types of documents we should be receiving on a regular basis, what type of transparency, how this person’s getting paid, all of these different things that people are educated about due diligence but going further, we really have to take a look at our family governance system as a mechanism of finding out the needs of our family and the goals that we have set and that’s the only way that can really decide what type of advisers we need because we need a team of advisers that’s going to help us achieve those goals and help us develop that organic wealth; the intellectual, social, and human capacity of the family members into material and financial asset or some type of wealth contribution for the family.

We need to understand that this person is—we’re hiring them to do a job for us; we need to understand the role that that adviser is going to play in our family; we need to understand the limits of that person’s expertise, how much we can stretch that person in their service for us that we ask them to do; we need to understand how to be as a client to them and how to be a responsible partner in managing our wealth; every bit as much as looking at the credentials that they have because just like we’ve seen, people can have credentials and still end up being strikers basically. So the idea is to number one decide what your needs are, what types of advisers you need, what roles they’re going to play, the job that you expect them to do, and then you can set up a list of criteria that you use to interview these people. It narrows your field. Number one, you can develop some basic questions which we work with families to develop that are going to help you understand within 2 or 3 minutes, is this an adviser that you even want to continue interviewing or not and then you can go from there. We have several layers of the interview process, reporting back to the family, getting maybe the family’s council if the family’s large. They have a hundred people. Obviously, you don’t have time for them to weigh in everything but representatives in the family council can hear these reports and make decisions on a fully informed basis instead of just your say through a family, a friend’s family who, okay, well this family hired an adviser and they did good job but then maybe they’ll do a good for us too and it can be true. It can be too late or very costly. You get out of that situation. So we highly advice the family developing its own due diligence criteria before they start talking to advisers and I think that goes a long way for helping them protect themselves.

Noah Rosenfarb: Before we have to wrap up, I wanted to just ask you if you had any stories that you can share about families of wealth and the transition they went through. Maybe either kind of a good news story or the bad news story, either way I think our listeners find it valuable to hear about the decisions other families have made and what the results were.

Lisa Gray: Well, I have a story that I tell often and I prefer to focus on the good news stories so this is a great news story. There’s a huge family that’s very successful, 150 years worth of success, 7 generation family that had a decision to make. Their business was not satisfying the liquidity needs of the family like it should. So they came to a point where they were going to absolutely have to create some liquidities and the family council actually did some research, it came up with 3 possible solutions. One was to sell the company out right, another was to take the company public, and a third was to simply hire someone, take on some private equity partners. There are 450 people in this family and this family spent the year going around meeting with every single family member often not necessarily individually but maybe in groups or in family branches or different family units but each person was allowed to hear what those three options were, the advantages and disadvantage of each, and then each person had to vote on what the family should do. Now that sounds like a really risky proposition for a lot of people. But guess what? The percentage of approval for selling this family business was 98 percent.

Noah Rosenfarb: Wow.

Lisa Gray: That is a unified family and we all know that a family united is almost impervious. That family went on to sell that major business and it’s been in their family for years and that enabled the family to create four other companies, several investment companies that would enable other family members to invest, would continue to create capital for the family but not restrict the flow of capital so much that within an operating business that the increasing numbers of family members were going to end up being damaged as a result. So that is a governance system that works. It’s much along the same lines we developed. In fact, this family was gracious enough to allow me to use them. I’ll write an entire chapter on them in my second book as an illustration of the governance system that I’ve developed and I went through in their story in that chapter. It pointed out how the governance system or the working in this situation and how this contributed to the success of that family. So it doesn’t matter how many family members you have and I also hear families saying, “Oh, we don’t have enough people. Well the fact is you have a governance system even if there are 2 or 3 or 4 of you. Governance system is either by design and I think it’s much more productive to have one that’s by design.

And just to give another quick story, another family I worked with was selling a company who’s going to use the proceeds for that sale—they were going public actually, they were having a liquidity event—and they were going to use the proceeds of that sale to set up a family office and they had all these lofty ideas of everything that they were going to be able to do with this liquid wealth; provide the highest level of healthcare for every family member from generation to generation to generation, offer educational opportunity to ensure that everybody got an education. All of that theory very worthy but you have to be really realistic about all those goals and you have to understand that the money no matter how much money it is, it’s only going to go so far. So I think again, going back to doing an analysis, understanding what you have to work with, how fast you’re spending that money, what your assets really are, the ones that you’re not recognizing, all of these factors go into the exit strategy and when you consider all of that and you have a good well working governance system, you really set yourself up for success. It doesn’t mean you won’t have issues to face but you’re going to be much more prepared to face those issues and your family’s going to be much more able to wear the crisis, anything that comes along.

Noah Rosenfarb: Great. Well, Lisa, what else do you want to share with our listeners before we wrap up our interview for today?

Lisa Gray: I guess the most important thing that I like to tell families is that you are not in this alone, that everything you’re feeling has more than likely been experienced in one way or another by another family and that you don’t have to make these decisions on your own either. That’s why I do what I do because I love helping families become more successful, helping families take the wealth that they’ve built and make it work for them instead of them being dragged around by the wealth that they’ve created and becoming dependent to that wealth. I love empowering family members and the more you are empowered, the more your wealth is going to become a gift and that’s my hope for working with my clients that I can offer them some opportunities to build that.

Noah Rosenfarb: So if one of our listeners has an interest in getting in touch with you, what would be the best way for them to do that?

Lisa Gray: I have a website: My email address is [email protected]. So you can either email me directly or sign our guest book on our website and you can reach me by phone at 804-343-1030.

Noah Rosenfarb: Great. Well thanks so much for joining us today and imparting your advice. We really appreciate it. And thanks to all the listeners out there who are looking for advice on their exit strategy. We hope you join us again for another podcast.

Lisa Gray: Thanks so much, Noah.

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Written by Noah Rosenfarb

Noah Rosenfarb
Noah Rosenfarb, CPA/ABV/PFS has devoted his career to advising business owners on all things related to money. He is a Personal CFO and Holistic Wealth Coach at Freedom Business Advisors, which provides middle market business owners guidance on how to successfully transition out of the management and or ownership of their company. Mr. Rosenfarb is the author of EXIT: Healthy, Wealthy and Wise.

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