Family businesses make up between 80% to 85% of the world’s GDP and fund 85% of all start-ups across the globe.
However, family businesses die out alarmingly fast. 70% of family businesses fail to transition into the 2nd generation, from the 30% that survive, only 12% are passed to the 3rd generation, and from that 12%, a mere 4% are able to usher in the 4th generation. This means that majority of family businesses are unable to survive beyond 60 to 70 years.
Most often, failure to maintain wealth through the generations is due to lack of communication, education and trust among generations, rather than a poor investment strategy or a series of economic downturns. Families who are successful at transitioning wealth from generation to generation adhere to three core legacy planning principles:
- Evolve a healthy family wealth culture. Creating a healthy culture — a shared set of attitudes, values, goals and behaviours that characterise you as a family — is critically important for a legacy family business. Often, the families who are most successful in developing a healthy family wealth culture preserve stories and history, articulate a common purpose and foster communication. Families who develop a healthy attitude toward their wealth through open and honest discussion are typically more likely to see that wealth preserved from generation to generation. Consider the elements that define your family’s culture, and keep them in mind as you designate goals for your wealth.
- Develop the rising generation. Younger generations often have difficulty distinguishing between wealth and money, and their attitude toward each can be very different. When developing your legacy, it is important to help younger generations understand how thoughtful spending, investing and charitable giving contribute to a sense of purpose. As you involve your children in your wealth management plans, providing age-appropriate transparency and creating a positive learning environment often put them in the best position to successfully preserve your family’s wealth and legacy.
- Lead by example. If you don’t love what you do and have passion for what you do, if your kids don’t see you come home each day feeling rewarded and energised, they aren’t going to want to inherit that business. If, at an early age, they don’t express interest in “being just like you, Mom/Dad”, because they see how fulfilled and passionate you are about your work, then you’re not going to convince them to take over your business as the years go by.
(based on an article published by Forbes: https://www.forbes.com/sites/catherineschnaubelt/2018/07/13/3-principles-for-a-successful-family-legacy)
