- Andrew Carnegie
As a financial planner operating in the business owner market, we have learned a great deal about family-operated businesses. Often the bonds of blood make the business durable and united, yet other times blood relations can ruin the business. Family businesses often have guidelines and precedents that rule the operations, as opposed to corporations with rules and structure. As a family grows and the business passes from one generation to the next, trouble often starts.
Here are some possible situations to consider.
As the business is passed from one generation to the next often: transfer costs are incurred, power struggles amongst siblings could arise, equitable distribution to family outside the business are concerns, and knowing how to operate the business disappears.
Initially, these businesses support a single household; as time passes, the second and third generations start families. This increase in households often dilutes the earnings if the business doesn’t grow.
Often to compensate the family fairly, members must be a part of the business. Placing family members in roles, they don’t desire or aren’t knowledgeable about could create tension and failure. Often the best person for the job is replaced with a family member who is just capable.
Segmentation of family begins. Each generation has a different level of experience and challenge. Often the older generations remember struggles associated with starting a business. The younger generations have the pressure and obligation to keep the business operating while supporting retired family members. The challenges associated with generational dissention can cause resentment and jealousy.
Often family unit silos are also created. The second generation has children. Each member of the second generation, like most parents, looks out for his or her immediate children and grandchildren. Its often that the third generation will voice his or her concerns to his or her second-generation parent, who needs to handle his or her generation (Siblings). This process could create individual separate family silos within the family unit.
Creating a clean financial, compensation, benefit, and operation plan assist families with an aging business. Using a team like ours allows individuals to share his or her concerns confidentially without immediately disrupting a cohesive family unit. The skills we bring to the table regarding financial planning can extend the wishes and desires of the founding member, but also assist each generation in a successful and cost-effective transition.
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Securities, investment advisory and financial planning services through qualified registered representatives of MML Investors Services, LLC. Member SIPC. www.SIPC.org. Joshpe Financial is not a subsidiary or affiliate of MML Investors Services, LLC or its affiliate companies.
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