Why won’t my kids take over my business?
The ironic struggle that most wealthy families face is this: the more wealth you have, the higher the risk of the younger generation losing sight of the hard work it takes to be successful.
This problem is especially acute for business owners who have achieved the lifelong pursuit of creating a successful enterprise for their family, only to find that none of the children have an interest in being a successor. An extreme depiction of this is the Roy family from the TV series Succession, which showcases the travails of an enormously wealthy – and at the same time, dysfunctional – set of individuals.
How do you avoid becoming the Roy family?
In this newsletter, we’re going to take a closer look at several aspects of family business succession for ultra-wealthy families.
Is it unreasonable to expect your offspring to be willing to inherit the business?
No. It’s natural to want or expect your children to participate in your business, which is probably the largest asset your family will ever own. The degree of reasonableness of the request depends on a few factors.
- How involved have your kids been thus far? If you are springing it on them suddenly, it’s a bit of a stretch to expect them to welcome this new responsibility with open arms.
- Is it a temperamental match? Some people simply do not have the disposition to run a business, and asking them to do so would lead to unfavorable outcomes for everyone: the child, the family and the business.
- How engaging is the business on an empirical level? This is a hard question to answer, as your business is likely a big part of who you define yourself to be. Try to step outside the role and ask yourself this question: If you were a possible successor, how attractive would the business be, objectively? Compare this to the other options that the child may have.
How do you motivate the next generation?
One of the big reasons a successor would choose to take on the family business is shared values. The successor would need to feel that they share the same core beliefs as the business, that it represents some inner virtue of theirs, and that it is a mission that they want to be on. It has to speak to who they are, just like any worthwhile opportunity would.
What are tactical moves you should be making, and when?
Use your skills and knowledge to teach your children, as soon as they are able to learn, about what it takes to be successful in this capacity. The learning you will impart to them is practical and experience-driven. Their counterparts who do not have this privilege will spend years and hundreds of thousands of dollars to acquire this type of knowledge (business school, etc.), and it still won’t measure up to real life.
Create a “family apprentice” type of program in which you plot the course for succession. Evaluate what teachings you want to give at every stage of the child’s life.
How do I develop leadership skills in my kids when there is no pressing need financially?
Your children may not feel pressure financially, but that is by no means a drawback; if this is handled correctly, it is a clear advantage. The lack of financial hardship creates the opportunity for leadership in its more powerful form, where decisions are made on the basis of truth rather than need. Express this to your children and communicate the important role they will play in continuing, and even enhancing, the family’s legacy. Motivate your children to see the business as a vessel to positively impact the world.
It’s important to define the role of Family Chief Financial Officer (CFO). This role may, and likely will, overlap with the role of successor. The Family CFO will be held responsible for numerous critical family wealth functions, such as:
- Appointing advisors (CPAs, attorneys, etc.)
- Communicating goals and responsibilities to other family members
- Ensuring the business plan falls into line with the estate plan
- Guarding family resources from risk
The dangers of losing wealth are real and there is a pressing need for financial literacy and stewardship. Defining these roles will help fortify the foundation that the family and its business runs on. By helping your children to embrace financial leadership, you provide a structure that is amenable to succession planning.
Ready to start working on it?
We believe that practical, economic education of your family, followed by regular visits and experience with smaller asset amounts, goes a long way to helping children (and grandchildren) become responsible stewards of the family wealth they stand to inherit.
As recognized practitioners in financial planning and wealth management, we strongly encourage our clients to seek counsel from the very best legal, tax, and insurance professionals. The Proquility team will proactively coordinate and collaborate with other advisors to assist our clients in fulfilling all of their planning requirements while saving them valuable time in the process.
If you’d like to start working on it together, please set up a time to talk.
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