Managing succession and preparing the next generation to inherit the family business can be a significant challenge. “There is a commonly cited statement that ‘90% of family businesses will not make it to the third generation’,” says Neel. “Whether this statistic is true or not, succession planning requires careful consideration and planning”.
Neel tells us of families who have grown their wealth significantly through the hard work of a patriarch, but they have almost been ‘too busy’ to step back to properly plan how their wealth should be managed.
“There comes a time when this needs to be done and planned for accordingly, especially in the anticipation of the next generation taking over the reins,” says Neel.
“Remember the current generation are merely custodians of family wealth for the next generation. Although it’s a cliché, and not necessarily as prevalent as it might once have been, it does no harm to remind oneself of the three-generation cycle and the maxim: ‘the first generation makes it, the second generation spends it and the third generation blows it!’”
We asked Neel for his expert guidance on handing business and wealth to the next generation.
Some families find it helpful to have a family constitution which articulates the values of the family patriarch and can serve as a reminder that the enjoyment of family wealth can bring with it both rights and obligations. It can also help to manage expectations of those working in the family business and working outside.
Help the next generation to become responsible, educated and competent in business and wealth management by having a comprehensive education plan. “Alongside formal education, schedule regular meetings with family members to review family business plans, financial reports, and discuss important matters.”
Relevant and credible experience outside of the family business allows the next generation to develop new skills and bring new ideas to the business. Some families make this a specific requirement before a younger family member joins the business. “Often the opportunities available to the next generation in terms of a very broad education followed by experience in industry or finance exceed those of the preceding generation” says Neel. “This can sometimes lead to differing views across the generations as the ‘young guns’ can be impatient for change, wanting to introduce rapid growth strategies, whereas the older generation may be more comfortable with a more conservative approach. A seasoned independent adviser, very close to the family, can mediate when required to ensure the best is gained from youth and experience.”
Where the family has a formal ownership structure involving external parties such as trustees, the next generation should be gradually integrated into the process by which the trustees are guided by the family before they are handed outright control/ ownership. This might involve the younger generation taking seats on the board of a private trust company or foundation, or less formally just becoming involved in external trustee meetings and communications. Neel says: “We assist many of our clients through this and use Trusts and increasingly Private Trust Companies (PTCs) to help achieve these aims. The relevant family member can be given a role on the PTC where they will get insights into how the wealth/businesses are managed without absolute control when they are not yet ready.”
Set up the family/business structure so your objectives/goals are clearly set-out and communicated with all relevant family members and there is a structured approach to ensuring proper ongoing updates on progress. “This will help all family members in not only understanding the wealth but also their roles. There is less scope for dispute and arguments when it is time to hand over the reins to the next generation.”
The world is getting more and more complex when it relates to tax and legal matters so it is important to ensure the family is well advised on an on-going basis, rather than just on a transactional basis. “When families embrace the use of advisers and develop a close and long term relationship with them we see tangible value that these advisers can then provide to the family, especially at a time when wealth gets transitioned from one generation to the next.”
Issues can occur when one member of the family is largely involved in the running of the business and therefore has more control and decision making power, so other family members who are less involved can feel left out or feel their interests are not being considered. “We work with a number of our clients to ensure these risks are properly managed through appropriate wealth structuring such as the use of Trusts. It is important to also note that often the next generation is in a different jurisdiction to the patriarch. This may also result in different cultural influences on the thinking that finds its way back into the family, not only extending to internationally dispersed family members, but also to family members who have married outside of the community.”
In Partnership with Minerva Trust & Corporate Services
For further information, please contact Neel Sahai, Director of Minerva Trust & Corporate Services on 01534 702800 or email [email protected]
Uzma Hasan has been developing Gautam Malkani’s cult novel Londonstani with her producing partner Cavan Ash, for nearly a decade. Now, with Nirpal Bhogal writing and directing (known for being. MORE
Women continue to make waves in the world of business. In celebration of International Women’s Day, we explore the qualities and abilities that make women such powerful entrepreneurs. Nima Suchak spoke. MORE
“When people join us on this journey, I make a point to share our objective -- that our goal is to help people look good and feel good about themselves.. MORE