Managing for Today and Tomorrow.

Family-owned businesses that last for many generations learn how to balance the needs of family members and the business. At the same time, they manage the business in the present with an eye toward the future. It's a challenge that affects everything from human resources issues to tax and financial strategies.

As one of the founders of the Institute for Family-Owned Business at the University of San Diego, Union Bank of California has helped many companies meet this challenge over the years. We have found that the best place to begin preparing for the future is to analyze exactly where you are today.

Plan for Succession

Succession is one of a family-owned business greatest challenges. Without proper planning many companies do not survive the process, even though the business may be growing and profitable. Yet two-thirds of family businesses have no succession plan to guide them through that critical time. It's important to consider these issues:

Management stability: Ask yourself: What are the skills, motivations and objectives of various family members? Will they want to sell or liquidate the business? Do they took forward to retirement or want to keep working for as long as possible.?

Some factors affecting staffing are unique to family businesses, such as the relationship dynamics that sometimes carry over from childhood. Developing formal, written policies covering the employment of family members can reduce conflict and improve the overall quality of leadership. Some family members have strengths that enable them to play specific roles well, but not to manage the entire business. Cross-training can minimize disruption and maintain business viability when the management changes hands. Including non-family members on your board of directors will add outside expertise and objectivity today.

Tax planning: Valuation of the company by a qualified third party may help quantify your tax liability so that you can develop effective strategies for handling state and federal estate taxes. Structuring and purchasing adequate insurance policies based on company valuation can help you reduce the impact of estate taxes, as can Family Limited Partnerships, Intentionally Defective Grantor Trusts, or Grantor-Retained Annuity Trusts.

What are Your Goals?

Every business has different financing, investment, cash management and foreign exchange needs. One of the most important factors for ensuring multi-generational success is finding the right financial strategies. Your banker should discuss the optimal capital structure, cash management or international solutions that meet the unique needs of your company now and help you plan for the future. He or she should also customize trust and estate planning, investment management and employee benefit plans to fit your requirements.

May companies miss effective financing options or lucrative business opportunities due simply to lack of awareness. Your banker should suggest solutions that help you reach your goals by answering these key questions:

* What type of financing is best at your stage of growth and/or family life cycle?

* How can you protect against foreign exchange exposure or interest rate increases?

* What investment options will contribute to meeting your objectives in the current and future marketplace?

* What cash management solutions are most efficient for your business?

* What tools will help you plan for successor generation?

You banker should look at your strategic plan, find out where you want to be in three years and longer, and offer ideas to help you get there. Whether you need leasing bank lines of credit, subordinated debt, or asset securitization to bring more money into your company, your banker should either provide that or locate sources for you.

The Right Financing

Several types of traditional financing offer low cost and good flexibility, including terms loans, working capital lines of credit and letters of credit. The key is to use them in the right combinations for your strategic plan. Sometimes that means terming out debt over several years rather than facing a large balloon payment on a revolving line-of-credit.

Asset-based financing is supported by a company's accounts receivable, inventory, equipment or real estate. Leveraged financing is structured on multiples of operating cash flow. The latter is often used by companies involved in rapid growth, acquisitions, or recapitalizations. This type of debt structure is generally secured, relying on a combination of cash flows to repay debt and assets to support refinanceability.

Other types of financing can provide inexpensive funding, as well. With interest rates at historic lows, commercial mortgages have never been more attractive. Owner-occupied commercial mortgages enable companies to acquire buildings or expand the business by using the existing equity in their real estate. Most banks offer fixed and adjustable term loans up to about $20 million for the purchase or refinance of an existing facility and construction-permanent loans that enable you to pay interest only during the construction period, then convert to standard term loans. Fixed-rate SBA 504 loans offer 90% financing with 10% down and long terms for the purchase, remodel or construction of commercial or industrial buildings.

Make Your Money Work for You

To use your funds optimally, you must balance risk and reward. Your bank should provide direct, immediate access to account executives and traders who can help you develop and-execute an investment strategy/portfolio based on your risk tolerance. You need access to a wide variety of high-quality investment vehicles, including government/agency securities, mortgage-backed securities, money market and bond instruments, corporate and tax-exempt securities, and derivative products.

Protect Your Funds

If you do business internationally, protect your company against losses due to sudden shifts in foreign exchange currency or interest rates. Hedge against these changes with risk management products that lock in your costs. If you are not using foreign currency, you may be missing sales opportunities that could drive substantial additional revenue.

Beyond global capability and trading flexibility, it s important to select foreign exchange advisors who provide timely market forecasting, overnight access to currency markets, advice on developments of special interest to you, and notice of strategic opportunities that may arise. Your bank can also help you avoid payment delays due to discrepancies in documentation, a problem common even to established international traders.

Closer to home, its important to safeguard your funds against the increasing problem of fraud both internal and external using various techniques, from online check imaging services to extra precautions with check storage and signature verifications.

In short, choose your banking partner as carefully as you chose your accountant your attorney, and other key business partners. These professionals can make invaluable contributions that can help your business stand the test of time.

Scott Connella and Bita Ardalan are Senior Vice President & Division Managers, Union Bank of California.