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Bringing the family business community together

Dilemmas Of Family Wealth & Succession

1st September 2016 Jacoline Loewen

Business owners who manage to sell their company after a long – and some may say torturous – process will experience both financial and psychological flashpoints.

They often describe the emotional moment when years of work transform into sizeable gains, leaving them rich in terms of investment opportunities, but perhaps void of the social clout they once enjoyed.

But they may also worry about the impact that sudden wealth will have on their children. It’s known as the inheritor’s dilemma and can block the succession plans of family businesses for decades.

It’s an unspoken concern that needs to be addressed. Children of successful business owners have not had time to create an identity outside of the wealth and status of the business. Affluence is a part their core and they may find it a challenge to develop self confidence and forge healthy relationships.

After they inherit great sums of money from their parents, the central message for successors is often contradictory. “Do what you want” may be one message, while “give back to society” is likely the other. And while entrepreneurs today are often viewed as rock stars by the general public, there are negative stereotypes to the privileged few.

No wonder most business owners try to keep their newly earned wealth under the radar, even to their own family.

In the early 1990s there was a television show called Quantum Leap where the lead character would find himself in a new time and place every show. It was amusing to see him adapt quickly or get shot by an irate cowboy. But when it comes to a quantum leap in terms of wealth, loose ends don’t get tied in one hour. In reality, the family has little experience to draw upon.

For example, should parents buy their teenage daughter a house for university to rent out to other students or encourage her to experience dorm life like her peers? This is where family governance techniques can really step up the process.

One tech entrepreneur who sold his Waterloo-based company for millions had his daughter build the business case for a house near to her university. She had to show the cash flow model and illustrate the gain if she bought a house instead and rented out rooms to other students. This become a rich education process between a father and daughter about how to put money to work and was also the start of a career in real estate.

Boomers who have run businesses for decades will be dealing with the wealth dilemma. By getting expert help in how to improve the succession process, they can help the next generation develop a strong identity in a different way to their own development. For example, instead of buying a home for their child, they can work together to develop a business plan for the place with specific goals and timetables.

Governance sounds awfully dull, but by consciously discussing identity and the legacy of the family, all members and beneficiaries can realize that it means so much more than simply whether or not to buy a house or rent. A well thought out plan can help create family traditions, for example. By helping create structures and processes that by themselves help reveal the strengths and weaknesses of a family, governance can facilitate more effective communication among younger family members and set a framework for younger family members to use to develop their own identity as they mature.

About the Author - Jacoline Loewen is director of business development of UBS Bank (Canada). She is also author of Money Magnet: How to Attract Investors to Your Business. You can follow her on Twitter @jacolineloewen.  This article was first published in The Globe and Mail and has been reproduced with permission.  Click here to see the original article.



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