One of the most common barriers to effective succession is simply a lack of money. The family business does not have the financial capacity to support all the generations of a growing family. Not all businesses will yield the wealth required to support the existing and new generations of a family. Looking ahead, seeing this reality and planning for it are critical.
Active Knowledge Question:
Have you looked to the future and thought about your business’s capacity to supporting a growing family?
Danger 7/12 – Empty – Treasure Chest
The traveller has failed to plan and prepare early enough and has not built sufficient financial resources to support the growing family and business.
The most common barrier to effective succession is a lack of financial resources for the exiting generation, the continuing business and the new generation – sometimes one of these and regretfully sometimes all of these.
A growing family requires growing financial resources. If your succession plan involves a transition of the business along family lines, then you will need to build the financial capacity of the business to meet the needs of not only your family but also your children’s families.
If you have three adult children who are all involved in the business, then potentially the business needs to be able to feed four families. Moreover, if you want to step back and take some capital out at retirement, then the business must either have that surplus capital or be able to raise it; otherwise you will potentially be loading the business up with debt.
Businesses can expand and grow to meet the needs of a growing family and money can put to one side to fund retirements, but often this takes many years.
Succession planning requires a long-term view to future family needs to allow adequate preparation and the resourcing up of the business. Otherwise, it may not be able to meet those growing needs and the family will be left with an empty chest. And family disharmony follows very quickly after that.
Quotes From Travellers – If I had my time again:
“I didn’t have much time to show my sons about my business” – From A Family Business in Japan
“I would have initiated family meetings years ago” – From A Family Business in United Kingdom
“Yes, grow the business more to provide greater possibilities for the next generation” – From A Family Business in Australia
The Twelve Dangers
There are many dangers that the traveller must be wary of and keep a close eye out for. Not only must they avoid these dangers but be proactive in protecting against them.
Part 7 of the series: 12 Dangers To Be Avoided In Succession
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All the best in the success of your business,
Richard Shrapnel
