For high-net-worth families, business is not about making money or profit. They see it as a legacy that they have built to pass on to generations. It is a representation of the hard work they have done for decades or more.
Many times, they have built an empire and generated wealth with the help of their business. It could be a family-owned business or an investment group etc. These families are concerned about the continuity of this business.
This is to ensure that the family wealth remains preserved across generations. Despite realising the significance of business succession plan, these high-net-worth families oftentimes lag the execution part.
Getting it done on time is necessary or else something unexpected can happen. One of the biggest issue might surface in the form of leadership disputes. This can happen even when the business has been running successfully.
This can even lead to financial instability and debts can pile up to make the situation worst for the business. A temporary way to tackle this problem will be by applying for debt consolidation loans in Ireland.
However, prevention would be the best solution. For that, the business need to have a fool-proof succession plan.
Why having a business succession plan is so significant?
This plan outlines how the business will transition into next generation or a chosen successor. The reason for this transition could be retirement, death or any change in circumstance that invites a change in leadership as well.
In the case of high-net-worth business families, the wealth involved is huge. It should be allocated in such a way that it should ensure that legacy will be maintained. This plan will define a few aspects:
- Identify leaders, owners and managers of the future era
- Structure how share will be transferred and outlines voting rights
- Manage how tax will be handled after this transition will happen
- Define the role of family members and non-family executives
- Protect the values followed by the previous owners and preserve the same during transition
A smaller enterprise might not involve a huge family tree or a bigger number of employees. However, high-net-worth families are complex to handle when it comes to succession planning.
The reasons why taking this step is important for these families are:
Preserve family wealth
Generational wealth will be lost if not handled with an effective strategy. This is the biggest fear for any high-net-worth family. In absence of a proper succession plan, other generations might face a lot of difficulties.
Even, certain matters will not get necessary attention when not covered by the plan. The chances of such occurrences increase as conflicts may happen when roles are handed over or decided.
To eradicate conflict and confusion, this plan is a mandatory thing. The biggest purpose of this plan is to ensure that the generational wealth remains productive and not get divided and dispersed with time.
This plan defines who owns what, how decisions will be made and how profits will be distributed within the successors and family. Such clear definition can prevent disputes amongst the family members.
Make sure about continuity of the business
When wealth has not been distributed properly, it may cause a lot of conflicts. This can eat away the productivity of the business. Usual operations will pause and the business might have to face closure as well.
Without a succession plan, making key decisions will be difficult. Even, the process might delayed thereby hampering the growth and wellbeing of the business. Getting external financial help will become difficult in this situation.
The worst part will be that the employees might even feel worried about their future. Without this plan, the reputation and valuation of the business might get hurt. Stakeholders might even lose faith which can be disastrous for the business.
With this plan, these complex decisions will be smooth. Leadership transition will happen smooth and the business can keep operating.
Keeping conflicts away
Personal relationships may suffer as disputes may occur in absence of a succession plan. Family dynamics might be ruined and complicacies will increase. Division of wealth will be unclear and this can lead to rivalries and generational conflicts.
Difference between the family members will not occur because of unfair expectations. Everyone will be aware who will take over as the manager, who will retain the ownership, but will have no operational control.
A lot of questions will be there and this succession plan can answer a lot of them. It will even tell what to do if the successor turns out to be unproductive.
The main idea behind having this plan is to address these issues in advance. Then, unpleasant situations in the family and between the family members can be avoided.
Optimise tax planning
Tax exposure is an important issue to address for high-net-worth families. They must take care of this aspect carefully when ownership is being transferred. Different types of taxes like inheritance tax, capital tax etc., can influence the amount of wealth that should be passed on to the next generation.
If these things are not planned properly, these can reduce the amount of wealth that the next generation will receive. Early implementation can be proved to be beneficial for the business.
Getting the next generation leaders ready
You must not think that devising this plan is not about choosing a successor. Rather, it is about developing a leader to handle the operations in the coming days. Leadership skills do not always pass down naturally.
These need to be cultivated properly through mentorship, preparation and experience. A succession plan will take care of this aspect. It will include steps that can help the future leader to hone the necessary skills.
It will take the next generation leader through a structured development process. This is to ensure that they become competent. At the same time, they learn how to earn respect from employees, stakeholders etc.,
The bottom line
The importance of having such plan cannot be overstated. It is about protecting the generational wealth and ensuring continuity of the business. It lets high-net-worth families to maintain the business legacy by making effective financial decisions at the right time.
