The eventual transfer of business related assets to children is a common concern shared amongst family business owners. As a result, client meeting discussions often turn towards evaluating the most effective approach.
Transferring business related assets is usually done through a combination of gifting and various forms of selling. The long-term effectiveness of any asset transfer strategy directly correlates to how gifts were handled in the past – have children always been given everything or have they had to work and contribute to receive rewards? So, prior to gifting and/or selling assets, a number of fundamental considerations need to be addressed to ensure you arrive at the asset transfer stage of your succession planning in good shape.
There are 3 common “giving” pitfalls that end up creating future havoc on your succession plan. Most of the time the family business owner believes they are doing the right thing, but are unaware of the long-term impact of giving or creating unearned rewards such as a job, title or a paycheck
Giving-Creating a job
Many family-owned business owners are fond of giving their children a job in the family business. You can actually do this. You can give your children a job. Because you own the business, you can not only give your kids a job, you can, in fact, create a job where one doesn’t exist, solely for their benefit. You could, of course, do this for anyone, but most business owners don’t do this for anyone. But, they do for their kids.
If you’re real honest you’ll also recognize the “blood is thicker than water” reality. Your decision making can be impacted, allowing you to fire or otherwise remove another employee, or even a key manager, in favor of giving your son or daughter a spot in the family business. Based upon years of experience seeing the outcome of this decision, dealing with the impact of creating jobs, I do not recommend giving your kids a job. They need to earn it. They need to come in to your business on the same terms as everyone else. Namely, with credentials and an employment history that has prepared them for the job available. If no position is currently open, don’t create an opening, unless there is a justifiable business need for the role. If there is another candidate more qualified, strongly consider them.
If you are anticipating the entry of your kids into your family business, at some point, take some time now, before there is any pressure on you, to develop the criteria upon which you will welcome your kids into the family business. It will pay great dividends.
How you historically handle giving to your children impacts their appreciation for future gifts. If you create opportunities that don’t really exist or just give them things without having to work for them, they will expect that sort of behavior from you in the future.
