5 minute read
Family Business the Next Generation.
Private Banker and Senior Vice President at a Swiss private bank, Elena Howarth, provides some expert advice on preparing to hand over your business to the next generation to ensure the smooth passage of family assets to them.
Waking up early on a sunny morning, we probably all think of the forthcoming events and meetings leading us to another achievement or just a small step ahead – this is what they call entrepreneurship’s spirit and this is what is driving us through this amazing life. Just stop for a second and look around – who else in your family is sharing this sensation? Are you on your own on this path or will your children follow you?
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Life has changed and people have started looking in detail into the strategy of family business development and thinking more long term. This subject of transmission is not only the business itself, but also family traditions: values and ways of living and an approach to life.
When the time is right and if your primary target is not to sell the business, but to pass it to the next generation, it is extremely important to make provision for a smooth transition to secure family values and standard of living.
Having entrepreneurs and business owners as friends and clients for many years, I have noticed how crucially important it is for them to know that their company, their creation will exist long term and for many years after. So, what will happen to your business, when it is time for you to go? For example, if you decide to become a monk in Tibet (as my friend was saying to avoid naming things directly).
Depending on the size of business and organisation of the family, as well as the country concerned, there may be different approaches and scale needed in order to ensure the smooth passage of family assets to the next generation. The situation is to be considered from legal, tax and operational levels. Moreover, the firstgeneration succession is the most important.
Families have a wide range of legal tools to achieve this goal. Shareholder’s agreements, foundations and trusts serve the purpose well. Not to forget to ensure how inheritance tax will be paid and to consider implementation of a matrimonial property regime. A family may want to create a Charter describing the family values, strategy, roles and responsibilities of members, and, of course, conflict management. It is actually the easiest way to transmit information and set up guidelines for future generations.
The decision on whether or not to include children in the family business is a major question. Who are the potential successors?
On one-hand parents are thinking - will my son or daughter be able to sustain the family business and will it be successful? Only 35% of businesses survive while being managed by the third generation (John L. Ward, 2011).
Alternatively, some children may have no desire or interest to participate in the business as their life interests lie elsewhere. I came across many families where children do not wish to follow the parents’ steps. The recent generations have different values and they choose different strategies in life – oriented to obtain quick results, less attached to property, wishing for more freedom and independence in life.
Sometimes it is already clear when they are still quite young, and then it is up to you to accept the situation and allow life to flow as it is, or try to do something about it.
For some families it is preferable to rely on external professionals instead of involving the young generation in business at management
level. In this case, they can be shareholders of a business without management functions. If your child has no desire to be a part of the business, you may just want to entitle him to receive a portion of the company profits as a beneficiary of a family trust.
As life is constantly evolving, the intention of children can also change with time. They may initially agree to participate, but then decide to stop being part of family business and therefore the process of family exit options is an important part of future strategy. Creating the path of quitting means preparing for the partial or complete sale and structuring after the situation.
How do you prepare children to be the future leaders of your business?
I am sorry to sound boring, but the key word here is ”education” – to train the younger generation and prepare them to deal with the responsibilities and future roles as owners of your family business and become the new leaders. The more and the sooner children are involved in the details of business and family finances, the better the chance they will be willing to participate actively as entrepreneurs and be successful.
We speak a lot about work-life balance, but I think it should actually not only be a balance between the two, but to some extent the successful co-existence, a symbiosis of those two important parts of our life. If after work I want to switch to talking to my children about school, it is fine. However, we often underestimate how important it is to talk to children about what happened at work, what we have been doing and what challenges and successes we faced during the day.
Moreover, there are special education programs for business owning families, designed to help the younger generation to become familiar with the business of their family. Another simple idea is to take your kid to work with you one day to make him feel part of your business life. There is no guarantee that your child will be an entrepreneur, but at least he will choose his future profession more consciously.
The younger generation have to be part of the dialog – openly discuss family issues and taking part in decision making. Talking of family values together, defining the strategy, making sure they are well equipped to face future challenges. Discussions with close family over dinner or creating a complex constitution on paper for a large and diverse family has the same purpose – to create a common base, share the family knowledge and to minimise potential conflicts in the future. A family in conflict is disastrous for a company. Potential sensitive cases between siblings have to be dealt with before they become emotional.
Thinking of all those situations in advance will definitely help the family business owner to avoid concerns, unexpected actions and extra costs in the future and will contribute to the success of the family business for generations to come.
Elena Howarth is a Private Banker, Senior Vice President at one of the largest Swiss private banks. She has been in international banking and finance for over 20 years with global expertise in private banking, including many years of leadership and management responsibilities. She manages a substantial portfolio of UHNW clients and intermediaries and assisting with family wealth structuring.
Elena Howarth
