Business owners are often asked to make donations to several charitable organizations during the year. Often these donations are made out of guilt and are not places the owner would really like to invest their money. In most businesses there is always a push and pull about where money should be invested and what the best use of that money is.
At the same time when the business becomes successful, parents start wondering how to get their children involved in business and how to best teach the value of money. This is often where philanthropy can play a positive role. Combining philanthropy, business donations and training for your children can be a good place to start in a family business transition.
We suggest that you start this program as soon as you can afford to make donations to charitable organizations. We encourage these donations to be made as a family with you involving your children in the decision making process.
The family council – the first step
Having a quarterly family meeting is a good way to start this process. At the family meeting, the parents can help their children understand how fortunate they are by having a conversation about those who are not as fortunate. Second, the children can be encouraged to start thinking about those who might be in need and how the family charitable donation might help.
The amount of money that is donated on a quarterly basis is not important. The conversation about how the money can be used is.
The conversation should focus on how efficient and effective the charity is at fulfilling its mission. Also, having a conversation with your children about what sort of activities the family should support is important.
Having an age appropriate conversation is a great place to start. As your children get older and more sophisticated, the family meeting is a good place to assign research projects and help your children learn how to evaluate the effectiveness of the charity.
The skills your children learn in this activity are the same skills they will find useful in the future as they start their professional career. Having the ability to critical understand the qualities and developmental areas of a potential charity are skills that will transfer to all areas of their lives.
The third generation business transfer
Third generations often have an additional issue that first and second generation owners don’t have. Third generation children have often seen little or no financial challenges appear in their family while growing up. The third generation did not grow up as their parents did watching the business go through the start up phase. They often have just seen the fruits and success of that business.
While the third generation is growing up the family business has often reached a stage of financial success where there is excess cash that can be used appropriately for philanthropic activities. In addition, the philanthropic activity can be used as a teaching tool for younger generation family members to understand how business works and evaluate the success of family donations.
The family council meeting is a great place to use philanthropic activities as a teaching tool. In the third generation, the amount of money used for philanthropic activities is often larger than the generations that came before. At the same time, the same principals can be used for teaching money values to younger family members.
The main difference here is that younger family members should actually go out and visit the less fortunate. This can sometimes help the younger generation understand how fortunate they are and help them know that not everyone has material wealth and comfort. This should help them develop empathy towards those who are not as fortunate. And, that empathy will serve your children well as they move through the management ranks in the family business.
So, what’s the purpose of all of this?
Business skills are transferrable. Often children are not excited about working or learning about the family business. Using the family council and charitable activities gives you as parents the opportunity to teach skills that are transferrable to any business situation.
Should your children decide to join the family business the skills they have learned through family council meetings and philanthropic decisions will be crucial in helping them make the right business decisions in the family business.
The family council will often show how a family can work together and whether it’s a good idea for the children to join the family business. The level of stress and potential strife will be much less, allowing all to see if the family can be a good business unit as well as family unit.
I’m a big fan of philanthropy being used as part of a family business transition. I’m interested in hearing your ideas. Please click on either our comments button or make an appointment button to set a time to speak with us about this. Or, send me an email at Jpatrick@stage2planning.com.