The mindset that can save the wealth of a family business
Introducing The Custodian Mindset
In October 2024, my father and I successfully exited our family business after nearly 20 years of its inception.
The journey I took to understand SMEs, and especially family businesses, was immense; learning how to build, acquire, run successfully, and exit has been one of the most stressful and joyful times of my life. What I learnt during this journey was the art of becoming a Custodian.
A Custodian, what is that? Well, let me explain.
Watch: The Mindset That Saves Family Wealth – A Custodian Explained
How Family Businesses Build Generational Wealth (Lessons from the UK’s Stately Homes)
In the UK, we have an abundance of stately homes. My family has a membership to the National Trust, and we often walk around these estates to spend quality time together. Walking around these grand houses and gardens, I wonder who started this legacy? At some point, a family member started or invested in a business or venture to achieve such wealth, which has had such a lasting impact. Whilst I understand that most of these estates are passed down from generation to generation.
The fact remains that someone in the family tree decided to turn their fate and fortunes around. They took that decision so seriously that they generated enough wealth to build a stately home. It always amazes me that a single person or family could change the fortunes of multiple generations to come.
That’s what I love about family businesses. It only takes one person who thinks, “I want to make my life and the next generations’ lives better”, to start that snowball effect. In my experience, owning a business is a fantastic way of generating personal and family wealth. Done right, these businesses can last generations and amass a family fortune.
If you look at the most successful family businesses and estates, they hold strong heritage and values that often relate to the founder. In this book, there are several mini case studies on various family businesses, and as you’ll read, the founders’ core essences are still evident today in their business or estate practices.
From Living for Now to Custodian: A Mindset Shift for Family Business Owners
Family businesses which have run for multiple generations have moved away from the mindset of living for now, i.e. taking as much money out of the business as possible. To the mindset of a Custodian. If you are growing, or have grown, a family business that sufficiently supports your lifestyle needs financially.
Then, shifting your mindset and becoming a Custodian could just be the great legacy you’ll leave for your family’s future generations. Being a Custodian means generating enough money to support your lifestyle AND invest for the next generation. In the Custodian role, your primary focus is the longevity and reinvestment of the business’s finances. If you do this role well, the results can be mind-blowing.
A basic example of amazing return on reinvestment:
If we look at investment in a simple form of personal finance. If you invested on a passive basis, using the maximum ISA allowance of £7,000 in 2005 and tracked the FTSE100 returns over the last 20 years, it would have returned 5.8% on an annualised basis. That amount will have grown to approximately £21,000.
That’s a nice return; the best bit is that many investors have shown that the UK FTSE lagged behind other markets such as the US S&P 500 1 , which has returned 555%, making your £7,000 investment now worth approximately £50,000.
Personal finance experts will make valid points, such as ‘Real Returns’ once inflation and the magic of ‘Compound Interest’ are considered. You may even be thinking, how does a personal ISA relate to a family business? I am not here to argue these very valid points, but to highlight the amazing return when you invest and reinvest money on a very basic level. And how does this relate to a family business? Well, in my experience, the personal and business finances are somewhat intermingled when you are a shareholder and possibly a director.
Roadster or Reinvestment: The Real Cost of Living for Now vs Being a Custodian
Let’s put this another way to demonstrate my point on reinvestment and becoming a Custodian. Could you imagine if, in 2005, £7,000 was spent on a depreciating asset such as a two-seater roadster, which you used on Sundays to show off to your so-called peers at the local golf club? You could spend £7,000 trying to impress people that you don’t need to impress. Or invest that money and in 2025 have substantially more to help fund your children’s or grandchildren’s house deposit or university fees. As I write, the standard entry fee for university in the UK is £ 9,535. Students leave England with average debts of £48,470 2 .
If your original investment did exceptionally well, there is a potential that your children or grandchildren have just completed university without being saddled with debt, which could take between 25 and 40 years to pay off, with repayment often not enough to cover the interest 3 . Not to mention that we have the highest house prices in history, along with some of the lowest affordability for young people today.
Developing a Custodian Mindset: The Key to Securing Your Family Business’s Future
Now, do you want to buy a depreciating asset to gain peer approval, or reinvest in your family business to grow returns each year and secure your family’s future? This is the essence of developing a Custodian mindset, thinking two generations ahead and investing in what’s best for them. Leaving profit in the family business and not taking every penny. Re-investing wisely and strategically can make enormous returns over generations.
Put it another way, most National Trust estates tell the same story: they were built up over time until, one day, an entitled family member takes over, doesn’t reinvest, and spends all the money on a lavish lifestyle. With no money left, the estate falls into disrepair and is taken into the National Trust’s ownership. Unless you want all your hard work to be undone by the next generation, developing the Custodian Mindset in your family business is a must. The best part it starts with you. Over the next few months we are going to be talking about what it means to become a Custodian of your family business, so stay tuned by signing up to our mailing list here.
1 https://www.fool.com/investing/2023/06/25/if-you-invested-10000-in-the-sp-500-20-years-ago/
2 Tuition fees: How much does university cost in the UK? – BBC News
3 Repaying your student loan: when and how much you pay back – Which?
Mark Bailey is a Family Business Consultant helping SMEs improve communication, profitability, succession planning and growth strategy. For more family business and small business sales support find and follow Mark Bailey on Linkedin.
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