Family Wealth: — Keeping It in the Family — How Family Members and Their Advisers Preserve Human, Intellectual, and Financial Assets for Generations, Revised and Expanded Edition

Chapter 4. The Family Balance Sheet and Family Income Statement

The family balance sheet and family income statement are key tools for measuring the health of a family's long-term wealth preservation business. As with any business, the shareholders— in this case, family members—need to know how the enterprise is doing, so they need a way of measuring the business's progress. These measurements allow shareholders to instruct the directors, managers, and trustees of the family business on the tasks of running it and to determine how well these managers are fulfilling their roles.

The traditional balance sheet attempts to measure the state of well-being of a business at a certain point in time. Such balance sheets contain statements of assets, liabilities, and shareholder equity as a reflection of the business's financial status. The family balance sheet also lists assets, liabilities, and shareholder equity but expands what each category measures. Because successful long-term family wealth preservation is achieved by enhancing the well-being of individual family members over a long period of time, the family balance sheet measures human and intellectual capital as well as financial capital. The family balance sheet is an attempt to measure how well a family is managing its human capital.

A family balance sheet is an addition to, not a substitute for, a family financial statement. A family wealth management business, like every other financial organization, must know its financial capacity ...