At first glance, this may seem illogical. How can you predict whether a deal is the biggest or best or that another even bigger and better offer will come along? However, the truth is that passing your assets to the next generation is essentially the biggest business deal we carry out (because entire accumulated wealth is transferred nearly all at once). Therefore, it is in the interest of all those involved to make sure it is perfect, because there is no chance of doing it again. Not only that, its impact may be felt by the next and following generations. On the other hand, they do not need to…
The topic of transferring family wealth to the next generations is not popular. This is natural –we have to admit that we are at the end of our productive life. However, naturally it forces the owners to consider how accumulated wealth should be arranged to benefit their children, grandchildren and, ideally, several other generations of the owners’ families. Practical experience shows that enormous wealth can make life easier, but on the other hand considerably difficult and, in the worst case, ruin it completely.
To find out true scale of the problem, painting a picture of the situation by asking a few key questions might be helpful.
Could the owner take six-month leave straight away and without any prior notice? Could s/he switch off his phone, shut down his mailbox, fax and so on? What would his company look like when he comes back?
One of the fundamental matters is the presence of someone who would naturally take over and, at the same time, immediately command the necessary respect among employees and business partners. Another question is whether the successor comes from the family or is a hired manager. In the latter case, the level of his/her motivation and loyalty to the owner is crucial.
It is uncomfortable to talk about such issues. Yet, they are central to the firm’s continuity and risk management. A trouble-free transfer of management powers has an impact on the firm as well as the life of the owner’s family as such, because it may be fully dependent on the income from the business.
If the answer to this question is negative, then the owner must deal with the issue. And while there are many problems that will disappear with time, one day succession issues must be confronted and cannot be avoided.
What happens when the owner leaves? Today, the owner controls and divides income flows across the family, supervises the business, and decides on investments. Can the owner imagine that such decisions will no longer be under his control?
There are many examples from the past of families that were not ready for a situation when the person with the final say in asset disposals suddenly passes on. As a result, the families became involved in fierce disputes about assets and overall disharmony ensued. Practice shows that people can fall out over a parents’ house, let alone a prosperous company…
However, the owner’s family does not mean his children only. They get married and the original family grows with new influences from the new members. The task of the owner and head of the family is to set rules preventing adverse external effects.
Is there an obvious successor for the owner directly within his family? Does he have someone to fully take over the family business?
Another question that must be answered leaving emotions aside. Accumulated wealth should be to the benefit of the new generations. The question is whether any benefit can be derived from a company with incomplete management, which prevents it from serving its purpose and is turning into a burden.
The owner has two options. He can successfully sell it (or a part of it) in time or, as explained above, can do all he can to look for a successor outside the family. At the same time, the owner must set rules relating to the distribution of profit and other benefits among family members. The rules must take account of both good and bad times. The purpose of such rules is to help the family members, not to be the only source of their income that kills their natural desire to better themselves financially and be independent.