As you head into transition territory one of the tasks you must undertake, as a priority, is cleaning house.
Those of us who have been in business for more than a few years know that you accumulate stuff, just like at home. Except in business, you accumulate dormant companies, undistributed retained earnings, pet businesses that never make any money, maybe a few, ah how do you say, ‘innovative tax minimisation projects’, and an assortment of all manner of things.
Cleaning house is necessary so you can get an honest handle on what you may want, or need to, transition and what has to be closed down.
The last thing you want to happen is for there to be an unexpected event, and then someone in your family must come along and try and clean your house for you. It happens a lot more than we like to recognise.
The simplest way to do this is to create a wealth map. This approach is explained in detail in Transition – Orienteering The Lands of Succession but the really quick summary is that you map out all the legal entities across your various businesses. You map them vertically by ownership and horizontally by business classification – trading, property, investment, private, dormant etc. And then add in the necessary details such as ownership, net market value, inter-company loans and profit, which allow you to see where wealth flows to under your existing structure. There are blank templates on my website that you can download for free, which should help you get the idea.
The wealth map provides the overview so you can step back and see what is where and decide what should be done about it.
Don’t leave it until the last moment of your transition as it will cause headaches and delays. Cleaning house every three years is a great habit.
Active Knowledge Question:
When have you scheduled your house cleaning for? You need to put it in your diary now and begin the work, it will take a while to assemble the information and work your way through it.
Searching for the world’s best succession guide? Buy Transition – Orienteering The Five Lands of Succession.
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All the best in the success of your business,
Richard Shrapnel
