This is a cautionary tale about a business I once knew.
The owner, a dedicated entrepreneur, had built his company from scratch with dreams of passing it on to the next generation. He believed that his business was for his family, and so he employed several family members to work alongside him.
However, the critical mistake he made was appointing his daughter as the Finance Director, despite her lack of qualifications – and inability to add up even the simplest numbers! He made similar mistakes with other family members too.
The consequences were disastrous. As you might expect, her incompetence in handling the finances had a ripple effect on the entire business. The company’s financial health declined rapidly, and before long, it was on the brink of collapse.
The relationship the owner had conceived between his business and his family turned out to be a dangerous fantasy. In the end, not only did the business suffer, but nobody in his family had a job or a stable income.
This unfortunate tale holds a valuable lesson for all business owners, especially those running family businesses.
As I explained in my last blog, you must have a succession plan to secure the future of your business once you are no longer involved. You have many options, from selling the business to grooming a successor, and even staying on as a silent partner.
But in a family business this is particularly complex, because of the tendency to give jobs to family members, regardless of whether or not they are a good fit for the job.
This is never a good idea. When it comes to succession planning, you must put the needs of your business first. Handing over your company to incompetent family members simply because of blood ties is a recipe for disaster for everyone involved.
This does not mean you cannot leave your business to your children. I’ve seen several successful examples, which all follow the same pattern…
These businesses invest heavily in training their family members who are destined to inherit the business. They start from the ground up, just like any other employee, and work their way through different roles within the company. No shortcuts or special privileges. This approach ensures that they gain a deep understanding of the business.
Take a family business where I was once FD, many years ago. The potential heir was brought in at the lowest rung of the ladder, working in the warehouse. He gradually climbed his way up, next becoming a salesperson. Throughout this journey, he earned his position through hard work and dedication.
When the time came for him to take over the reins, he was equipped with the skills and knowledge necessary to lead the business successfully. I really respected him.
This is the model the royal family follows. Okay, I wouldn’t say the Prince of Wales enjoys no special privileges, but he is certainly being put through an intense apprenticeship before he can inherit – like his father, King Charles, before him.
If you run a family business and envision passing it on to the next generation, you must adopt a similar approach. Do not give your heirs an easy ride. Their future, as well as the future of your business, hinges on their preparedness and competence.
And if this is an area where you would like advice and guidance, we can help as we often consult with our clients on succession planning.
You might find this surprising; perhaps you’re wondering why the jobs you give your children have anything to do with your accountant.
The answer is, succession planning is intricately connected to financial planning.
Choosing to leave the business to a son or daughter will change the way you build and run your business today, which has financial implications. And if your business fails once you’ve stepped down, there may also be financial repercussions for you, if you still own part of the business. It will certainly have financial repercussions for your heirs.
At the Outsourced Finance Department we don’t just handle your company’s accounts; we’re here to help you make the best financial decisions for the future of your business. This strategic approach to financial management goes beyond what “regular” accountants offer, but it’s the kind of approach corporates take for granted and standard practice when you partner with us.
If that’s the level of financial management you’re looking for, please get in touch today.
Simply hit ‘reply’ to this blog or call us on 01279 647 447 to find out more.
Warmly,
Garry
