Bringing children into the family business is the dream of many business owners. But it's not as easy as you may think. Here are some potential trouble spots, and some suggestions for what you can do to avoid them:
Five Trouble Spots
- Business founders and heirs often disagree about each other's (and their own) roles. Who should take the reins and when, as well as how things should be run during the transition years.
- The parent often has a strong personality and identity. This hard-driving approach is crucial to starting and building a successful company. Unfortunately, it is this same strong personality that can drive away an intended successor. Plus, many parents aren't sure when (and if) they ever want to step down or even share control of the business they founded.
- Many company founders are hesitant about asking their children to make the same sacrifices and commitment they have had to make.
- Lack of succession planning, even in businesses in which both generations agree that the children should join the company. Long-term goals and objectives are often vague and informal. As a result, the children are left in a state of limbo, unsure where they fit in.
- Children often have reasons of their own for wanting to join the family business. Some children are proud of what their parents have built; they see joining the business as an opportunity for their own growth and development. Others enter the family business out of guilt or a desire not to disappoint their parents. Still, for a variety of reasons, many would rather seek their futures elsewhere.
So what can you do? Here are a few tips:
- Encourage, but don't push. If you force the children to enter the business, the result may be friction and misunderstandings that can tear apart your family and your business. Encourage teenage children to "sample" the business through part-time work. But make sure the job description is well-defined, and, if possible, that someone other than a relative is their supervisor.
- Recommend that they work elsewhere for several years after completing school. This gives them the opportunity to gain experience and maturity. It also helps build confidence and gives them a chance to see how other businesses are run.
- Share your vision. Tell your children why you started the business, what it means to you and where you see it going in the future.
- Respect their vision. Even if your children enter the business, they may want to do things differently. Give them an opportunity to do so.
- Let them start at the bottom and work their way up the ladder. If you name your 25-year-old daughter vice president, with a big corner office, no one (herself included) will take the position seriously. One solution is to have them work a year in each department or division. This provides valuable experience and the opportunity to learn every aspect of how the business works. In just a few years, they can become valuable assets to the business and will be well prepared to step into your shoes.
- Be as specific as possible about succession plans. This lets them know where they stand, so they can plan their own lives accordingly. Perhaps you intend to hand over control of the company gradually, over a 10-year period. Make sure you are ready to make that commitment and your children are ready to accept it. Whether it's a blood relative or a loyal employee, it is important to put your succession plan in writing. You need to formalize terms and conditions, so the transition can go smoothly. Of course, there can be no transaction without funding. Talk to your New York Life agent, as well as your own professional tax and legal advisors, for more information about succession planning.
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|Children Heirs: Trouble Spots & Suggestions|