The importance of financial planning for all involved in family business.

Family Businesses, they can be extremely rewarding working with those closest to you but can be more challenging as a result of that relationship (Trust me! LOL). To every upside, there is a downside.

For the elder generation it is crucial that an exit strategy is well mapped out and that they are able to offer a fair and reasonable deal as this impacts the longevity of the existing business if it is not. Both generations need to be involved in the planning of the exit strategy and this needs to be a very clear and transparent process, otherwise a family relationship is on the line as well as a business valuation.

It is very common to see businesses ‘worked to sell’. That is making changes to their spending habits to extract the best numbers for a sale. This could be at the expense of the future growth as the reinvestment into the business may have been slowed down to enable this profit increase and that may impact the potential for future profits. Are you going to want to do this to your children?

If you are wanting to increase the chance of success for both generations, the planning needs to be done over a number of years and in most cases,  this involves ensuring that the older generation has adequate financial resources behind them. Therefore, the need for a quality financial plan is paramount.

The biggest problem that many of the older generation suffer from is a lack of other financial resources outside of the business. This results in the requirement to maximise the value out of the business and then may end up being overpriced for the younger generation. I don’t believe that this is intentional in any situation, but it is the reality of many as they don’t have the ability to retire without this arrangement. This is where problems arise:

  1. Younger generation overpaying for asset,
  2. Older generation unable to afford the retirement that they desire,
  3. Both parties unable to agree to terms and relationship breakdown occurs.
  4. None of these outcomes are ideal, but they are very common!

Working in a family business we understand this, and we work with many clients in Family Businesses. It is a delicate dance that needs to occur to make it fair and reasonable for all parties as the bigger picture of the family relationship is also on the table.

We believe that we can assist in the planning process so that the older generation can exit, and the younger generation can come through and ensure the continued success of the family business to potentially move on to another generation. If you are in family business and want to do everything you can to make sure that it is the overall family unit that benefits, then we would love to sit down and chat about how we could assist.


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