Wealth vision in Family Businesses

“Every family business should define a clear path and objectives about what they want with their wealth in future generations.”

Wealth generational change in business families is related to the commitment of its members in the organization, the knowledge of the business, and the long-term planning, which is closely related to the interests of the family. It is necessary to develop a culture of wealth planning. There should be a continuous process of revision and analysis of strategies according to the changes in the economic environment and a plan of wealth education for the different generations.

When we speak of estate planning, we are referring to all those projections and decisions through which we intend to safeguard wealth for the future. This planning encompasses a series of particular issues that include the needs of family members, collectively and individually. This is an exercise that must be renewed and updated constantly. The economic situation is changing and, looking at it from a tactical point of view, it is necessary to adjust the circumstances to the needs of the family and the current circumstances.

From the point of view of responsibility, it is fundamental to understand that within business families there are some problems associated with economic flows that are very sensitive. For example, the distribution of dividends. As time goes by, the family grows. Generally, this growth is greater than that of the company because the founder creates an empire from the beginning and expands its wealth, passing it to the next generations.

However, in the course of these generations, is difficult to sustain these levels of growth. If the family manages to grow symmetrically it will generate pressure on dividends, especially when there are members outside the company. In short, because new generations are more likely to get the dividends that belong to them, and because they are not within the corporate governance of the company or its economic circle, it is more likely that the assets will be dispersed and the company will not grow as it did in its early days.

Increasingly, these individual members may become dependent on each other since most of their income is through the dividends that the company pays. Not understanding individual needs and personal financial planning means that the person in charge has to demand more growth and performance from the company.

The problem is that these two situations are subject to economic cycles and are determining and generating a series of negative scenarios. Demanding a sizable number of dividends removes the possibility of company growth. When few dividends are distributed, different members of the family may think their wealth is not generating any income and will lose that individual commitment.

One recommendation that we usually make when we are consulted on this problem is to get more training on wealth issues. If they understand financial management, they will understand and plan their personal finances in such a way that they will allow the company to have a normal balancing process.

It is important to emphasize that wealth responsibility is not limited to the conception of taking care of material wealth, but also includes the different dimensions of family wealth. It is not possible to be responsible of financial or patrimonial capital. Is also important to have strategic knowledge of different capitals. Such as intellectual, structural, spiritual, family and emotional capitals, among others. Is important to understand how all these factors must have strategic planning and advanced management within the family and be known by all members.

Methods for developing strategic planning

In wealth, it must be clear that the earlier you plan, the more you will develop or influence the unique aspects that the family must address. Family members should be offered the possibility of learning all issues because it is not only planning. A continuous and updated process of revision is necessary, according to how the economic environment changes. This should be a continuous exercise of each generation and in this way, a culture of planning will be developed where many problems will be avoided. The founder should start with this exercise to pass it on to the next generations.

It is important to keep in mind that this vision of wealth implies an integral focus on the business, family, and individual aspects. This tree aspect should connect from a strategic level where everyone commits to getting family and individual benefits, but assumes the commitment and responsibility to do so hopefully in the most professional way possible.

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