Preparing your kids for the transfer of ownership
There are two aspects to transferring a business to children: the technical aspect and the emotional aspect. Families often have a harder time preparing for the emotional component. It requires some deep introspection and conversations about your family values and long-term goals.
Here are five ways to help prepare your children for a successful business transfer:
1. Engage children so they have a positive relationship with money. It’s important for parents to address the psychology of money and engage children so they have a positive attitude about wealth and can manage it in a way that works for them. It really comes down to instilling a strong sense of self-worth and allowing them to have their own identities. Talk to then about the importance of being a contributing member of society and how the business furthers that goal — how it creates jobs while providing services or products that improve people’s lives, or perhaps how the company’s philanthropic activities benefit the broader community.
2. Help them understand the responsibility. It’s vital that your children understand that focused effort and stewardship must continue in order to maintain the business. Start by sharing your family values and making them a common part of everyday conversations and behavior.
Tell the story of the family business. Humanizing the company can help build a nurturing sense of responsibility in your children.
As they get older, talk to them about the technical side of estate-planning concerns. When they’re old enough to understand, let them attend wealth planning meetings with your advisers.
3. Give them age-appropriate tasks. When they are young, teach them how to count money and save for important things. You may want to give them a small bank account so they can start learning about cash flow, budgeting and saving. Find age-appropriate opportunities for them to earn money.
As they get older, you could give them a small pool of assets to invest themselves. Teach them or have your advisers explain how to research companies and determine value metrics. Involve them in philanthropy. If they are interested in taking an active role in the family business, teach them about the business and tell them what qualifications are needed to obtain a job there.
4. Inform them about all the assets they will inherit. When your children are mature enough, let them know exactly what business interests and other assets they will inherit and your intentions for them. Will your child’s spouse have access to them? Can the assets be used only for the grandchildren? How should your children think about the business compared with other assets they will inherit? Is it OK for them to sell company shares? Can they use the assets now to further their own interests, or must they wait until you pass away?
5. Respect their goals. This ties back to giving them the space and tools to develop and maintain self-worth so they have a positive relationship with money. If someone joins the family business but thinks the job is a burden and limits their dreams, the individual, the company and the family will all suffer.
Help them figure out how the family can help them fulfill their goals Maybe it’s best to develop them as knowledgeable owners who don’t work in the company. If they do want an active role, think about what experience and education they will need, and how you can develop their leadership capabilities.