“How Do I Tell Them?”
There may come a time at which all must be laid bare; the good, the bad and the ugly. Do it openly, honestly and begin to share the burden.
You won’t be surprised to hear me say, that come succession time, for many businesses there is simply not sufficient wealth to go around the whole family. As I have mentioned before insufficient wealth is one of the most common barriers to succession.
Why is it a barrier? Because the owner is not sure how to fix the problem and tends to delay succession trying to fix it. It might be that the business cannot attract a sufficient capital value to fund exit and retirement. It may be that the children have no capital to contribute to the business, raising debt is not wise and the parents don’t have sufficient wealth outside the business.
Or it may be the business doesn’t earn enough profit to support the growing family. Whatever the reason, there isn’t enough. It can also become messy if your children or other family members work within the business and depend on the income they receive for their livelihood. It can restrict the options you have available, for example, you may not be able to ‘sell the business out from under them’.
Starting succession planning early will provide you with some foresight so you can develop options and strategies to address the wealth issue, but, sooner rather than later, you need to be honest with yourself and your family and set out the facts.
Be real and state as clearly as you can the reality and options as you see them. I call this ‘sharing the burden’. They need to know, and they need to know sooner rather than later. Also, when thinking about how all the sums add up, be very careful to understand and unravel the corporate and trust structures that have been put in place over the years.
These are typically established to minimise tax and can sometimes have a real bite in the tail when structures are wound up. Message — there might not be as much wealth as you thought or hoped for after the structures are wound up and taxes paid.
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An Invaluable Resource — ‘Transition — Orienteering The Lands of Succession’
