There has been considerable growth in the number of family offices in the US and North America, and this trend is expected to continue. Some family offices exist mainly for wealth management and preservation, while others offer a variety of services, including philanthropy, investments, portfolio management, tax planning, bookkeeping, estates planning, and generational wealth transfers.

Financial management should be the core focus of family office operations, as inefficient cost management and overspending can wipe out generational wealth. A sound financial plan and effective budgeting techniques could be the difference between a successfully run family office and one plagued by operational and cash management challenges.

Family Offices play a crucial role in supporting families during these uncertain times

In this age of uncertainty, the days of steady, predictable revenue and earnings growth are long gone. The ongoing pandemic, Russian Ukraine war, rising inflation, soaring energy prices, growing cyber security threats, and other economic setbacks continue to present major challenges for businesses.

Long-term budgeting and financial planning are no longer sufficient, as it has become increasingly difficult to forecast over longer time horizons. Family offices need to implement a more flexible budgeting approach, so they can adapt quickly and run their operations more efficiently. A quality family office software can help with the budgeting process.

Creating a Budget amidst the uncertainty

Proper planning is crucial in a world plagued by uncertainty, geopolitical tensions, soaring inflation, and escalating energy costs. Family offices must make provisions for more setbacks, and should plan, organize, restructure, and budget to mitigate current and future risks. A sufficient operating budget is needed and should be provided to create the most value for family members.

Once the annual budget is determined, the next step is to decide how the family office will charge for services provided. This should be enough to cover the family office expenses to ensure that it can continue to operate as a going concern.

A general rule of thumb is for annual operations costs to be 1% of assets under management; however, this can vary depending on the complexity of the family office operations, the types of assets under management, and the services provided.

Your budget should include the cost of acquiring top talent.

A large contributing factor to the success of any family office is the talent it employs. Wealthy families realize that they need qualified personnel who understands and can provide tax planning, investment management, estate planning, bookkeeping, accounting, insurance, and tax compliance services.

The cost for staff compensation and benefits can account for a sizable portion and in some cases for most of the annual budget of Family Offices. There needs to be continued focus on attracting and retaining top-notch talent, and Family Offices should ensure that this is sufficiently accounted for in the budget.

What makes a solid operating budget, and why you need one?

Budgeting for family expenditures is the foundation of a quality financial plan, and a sound operating budget should effectively track cash flows and investments across complex family structures.

Some factors to consider when creating the right budget include the size of the family, its structure, the countries of residence of family members, the shared interests within the family, the incorporation location of the family office, the asset classes owned, and the needs of every family member involved.

Family offices should also consider their annual operating costs, what they will charge for services, and what services will be outsourced vs. offered in-house.

A Financial Budget provides tremendous value to Family Offices:

  • It ensures that every financial transaction adheres to a cohesive strategy for the overall wealth management of family resources.
  • It facilitates the overseeing of investments, family businesses, estates, kid’s schooling, foundations, charitable giving, paying staff, and more.
  • A well-prepared budget makes the investment tracking process more manageable, and a quality family office software can make the budgeting process a lot easier to implement, monitor, and adapt.
  • If your family wealth includes alternative investments such as real estate, commodities, precious metals, private equity, and venture capital, forecasting investment-related service costs can be challenging. Hence there is great need for a flexible robust operating budget.
  • It provides a glimpse into the financial health, success, and future of the business.
  • It helps Family Offices avoid excessive debt by helping them spend money in the right places when required.
  • It helps the office keep control of its business operations, costs, and expenses, improving the chance of long-term success.

Steps to creating a budget for your Family Office:

  • Identify and set clear goals – Determine the goals of the family office, and the standard of living that the family members desire.
  • Include all family members in the budgeting process – It’s important that all family members are involved in the planning process so that the goals and budget reflect the opinions and objectives of each family member.
  • Decide on a timeline for your goals – Streamline your short-term goals, (those you want to achieve in the coming year) and your long-term goals (those you want to achieve further into the future).
  • Set attainable goals – Be realistic and consider your available cashflow, income and resources.
  • Identify your sources of Income and your operational costs.
  • Keep accurate family records – The best way to create an accurate effective family budget is to be very informed about your current and past expenses.
  • Set aside a contingency fund for unexpected expenses and less than anticipated income.

Once you’ve determined your short-term and long-term goals, timeline, sources of income, potential expenses, you can create a comprehensive budget and put your goals into action.

A Family Office Software Can Simplify Your Budgeting Process

With the outdated inputs and standard methods, the business-as-usual budgeting process is no longer enough. There is a greater need for high-stakes purposeful budgeting and more effective planning. A dedicated financial management software that goes beyond your basic accounting needs can significantly enhance your financial planning experience, leading to more efficient decision-making.

FundCount offers Family Office Software Solutions for all your budgeting needs.

FundCount has the required expertise, services, resources, and software to help Family offices evaluate and manage their financial needs enabling them to develop a clearer understanding of their financial goals and objectives.

Contact us to see how we can help you with your financial planning and budgeting needs.

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