A lot of times, family businesses rarely ever make it past the third generation. For whatever reason, the company experiences internal conflict that causes the family to lose rights to it. In worse-case scenarios, poor leadership from its successors causes the business to collapse. As the current businesses-owner, you would want all your hard work to last.
To make sure that your legacy doesn’t go to waste, follow these best practices.
Teach the basics
Similar to having a regular job, kids would get curious as to what your business is about. Although it is too early to involve them in running the company, it is good practice to have them know its basics. This can include understanding how the operations work, the hierarchy, and the extent of your involvement in the company. How are other relatives involved, and what is their role?
It is also nice that the kids have an idea of what your business is about. Letting them know what your business is about and how it affects your community can make them appreciate the work you do better. Aside from that, many young kids don’t often understand why their parents work so much. As a result, they can end up detached because of their lack of understanding.
For those with adult kids, your kids may also be able to identify issues within your structure that you usually would not notice. Even if they decide to pursue other careers, they might offer insight based on their unique education and experiences.
Good leadership and governance should also be taught. Some children, after inheriting a business, can forget to treat the employees properly. They may have a tough time complaining because it is the boss’s relative or sibling. That is why it is best to help your kids understand that the company was built with the help of these people.
Follow good financial practices
A common reason why many family businesses fall apart is the lack of financial education. Sometimes, family members and relatives have poor financial management skills and end up spending funds made for the company. Others worry about the income and neglect investing in structures that improve the business. What ends up happening is that either the business goes bankrupt or is sold off.
To prevent this from happening, you have to instill good financial habits in your kids and relatives as early as now. It means teaching them how to hold a budget and to avoid spending beyond their means. Not only is this good for the family business, but it can help them with their character in the future.
Aside from that, your children need to understand the value of the money spent in your business. They should realise that the income earned there should not be spent on personal matters. Despite being the owners, the family should avoid incurring unnecessary expenses that do not directly help or benefit the business.
Discuss successions beforehand
The research found that 43 percent of family businesses don’t have a succession plan, which can be a big problem. Companies should be prepared in the event of an untimely death. Aside from that, an early discussion can avoid family conflict and drama. You should always remember that the act of succession is a gradual process and not something that happens overnight.
Another important reason why it needs to be handled in advance is to figure out who wants or should inherit the business. There is a possibility that a child may wish to pursue their own path or only want to be minimally involved. In that case, it’s best to know how to prevent resentment from being forced to manage a business. You can do this when they are college-aged so that they have more maturity. If someone wants to become the next owner, then you can start training them ahead of time.
If you plan on dividing the company, then you should make the allocation clear. Any terms that you want to be made, such as a specific age restriction, should be managed ahead of time as well. You can hire wills and legal services consultants to discuss the best course of action. They will likely suggest a third person be the enforcer as well to prevent bias.
Family businesses are challenging to maintain. Egos and selfishness can sometimes get in the way of good decision-making. This is why current owners need to make proper preparations as early as now. At the same time, they should not neglect to teach suitable practices to their children.