Knowing where your wealth lies and considering how you intend to transition and share it with the next generation in a family business transition can be complex. Take the time to get it right, discuss it with your family, and seek professional advice early. Settling your wealth allocation principles is one of the five lands that you must transition in developing your family business succession plan.
Active Knowledge Question:
Have you addressed all the issues required to settle the wealth allocation principles in your family business succession?
Over the past few weeks, we have considered a wide range of issues around developing your wealth allocation principles to support your family business succession plans.
Here is an overview of the steps we have covered to date:
- Forethought And Dividing Up ‘The Farm’ – Succession may be some years away for you but have you thought about how your assets may be allocated between family members?
- Wealth Allocation With Wisdom and Prudence – Have you established wealth allocation principles to guide the long-term structuring of your various business activities and investments?
- Wealth Allocation Principles – Does everyone in your immediate family have a clear understanding of how you will approach succession, and, when the time comes, allocate your wealth?
- Wealth Allocation – Asking The Right Questions – What questions have you asked in developing your wealth allocation principles?
- Wealth Allocation – Who Should Own The Business? – What ownership structure do you believe will underpin the long-term growth and success of your family businesses?
- Wealth Allocation: Who Should Be Shareholders Of The Family Business? – How have you ensured that the interests of all shareholders in the family business are aligned and protected for the good of the business?
- Wealth Allocation: What Should Be In A Shareholders’ Agreement in A Family Business? – What type of relationship do you want to exist between the shareholders of your family business? Describe the key traits of that relationship.
- Wealth Allocation: Hold, Divide Or Multiply? – Have you thought about what you would do if an all-out battle broke out between some of the next generation for control of the family business?
The above eight articles will provide you with a good handle on the key matters to be addressed in developing your wealth allocation principles.
Now Is The Time
No matter how far away you believe the eventual transition of your family business may be, settling your wealth allocation principles should be done as early as possible. They should then be communicated to family members with all subsequent actions and decisions made consistent with those principles.
Of course, if the situation changes, then you should amend or update the principles. But your principles should always be established to support the cornerstone goal of succession, which is to ‘enable the compounding of wealth from generation to generation while ensuring family unity, individual growth and a sense of contribution’.
The Wealth Allocation Principles’ Checklist
If you believe you have addressed your wealth allocation principles, then here is an exit checklist, which you can use to tick off your actions:
- Have you drawn up your wealth map?
- Have you located and gathered all the required supporting documentation of ownership and control for all of your entities?
- Have you sought legal advice (where applicable) on any points regarding ownership and control that are unclear?
- Have you written up your initial thoughts on:
- The allocation of wealth across the next generation?
- Specific assets/entities to be transitioned to various family members?
- How to allow for you and your spouse’s individual financial needs?
- Have you communicated your approach on how you plan to allocate wealth to family members to ensure their support and not to give rise to any future conflicts?
The ‘Land of Wealth’ is one of the five lands that you must transition through before reaching the point where you are able to pull together your family business succession plan. Make sure you transition through all these lands to develop a robust and complete succession plan. Unsure how to proceed, here is my guide, Transition – Orienteering The Lands of Succession, that will assist you.
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All the best in the success of your business,
Richard Shrapnel
