There are two ways to enlarge wealth in a family. The First is for members of a family to develop certain abilities to grow wealth on a consistent basis. The Second is for a family to manage the load of dependent family members. The more human load is piled on wealth. The faster wealth will die. When wealth dies the children in a family will suffer.
Their dreams and aspirations will stall and they will struggle to create wealth on their own. If they succeed, wealth will return otherwise they will languish in poverty. To prevent this from happening to a family, a family leader must device means to keep and grow wealth in a family for many generations. To grow wealth, members of a family must develop certain abilities.
These abilities are usually acquired when a person goes through the process of creating wealth from scratch. Since subsequent generations will not have this privilege, family leaders must help them develop these abilities if wealth is to be preserved. It is the failure of family leaders to equip the next generation with these abilities that ultimately lead to the death of wealth. To succeed at preserving wealth, family leaders must help the next generation develop these abilities.
They must also define what wealth means to them. The simple way we define wealth is this. Wealth is any asset human or financial that can produce more income for a family. That is future income not current income. The current income in a family is not true wealth. True wealth is not measured by things that can be stolen, lost or destroyed. True wealth is measured in things that can stand the test of time. Any amount of current income can be lost. True wealth is the ability of a family to produce income on an ongoing basis. It is this ability that keep wealth in a family for many generations.
For a family to develop these abilities and produce continuous income, it must leverage its two key assets. The first asset is the Human asset and the second asset is the existing financial asset. The human assets are the human beings in a family that are responsible for preserving wealth. This includes the wealth creators and their successors. Both have certain responsibilities they must fulfill. The wealth creator has two responsibilities to fulfill. The first is to prepare for succession. Succession is the preparation, optimization and transfer of a business asset to a ready and equipped successor. To successfully handover business wealth, wealth creators must standardize their own wealth creation process. That is they must document in easily digestible form how they have grown wealth over the years.
Standardizing their wealth creation process this way makes it easy for them to transfer valuable lessons to the next generation. It also gives the next generation a template to work with. Standardizing the wealth creation process also means that valuable wisdom is preserved and mistakes are not repeated in a family across many generations.
The second responsibility the wealth creator has is to hand over to the successor at the right time. The right time is as soon as the successor is ready to take over. Without a ready successor, succession cannot take place. Getting successors ready require that wealth creators with the help of their advisors create the Designated Successor profile.
This profile shows a detailed description of the best person to lead the family business. Wealth creators and their advisors must approach this task like creating a profile for an important job role. Each potential successor must then be anonymously accessed to see how far or close they are to the designated successor profile. A detailed report of recommendation with action steps of what to do to bridge any gaps then need to be compiled. These are the two responsibilities the wealth creator must fulfill. The successor also has two responsibilities to fulfill.
First he must acquire and master the skills and abilities to expand wealth. Second he must receive the baton of leadership and lead the family business to greater heights. Mastering the ability to enlarge wealth requires that he develop three skills. The first skill is critical thinking skills. That is he must have the ability to create profitable ideas from an intelligent collection of thoughts. The second skill is creative skills. That is he must have the ability to create valuable products and services from his ideas. The Third is the marketing skills. That is he must have the ability to exchange his products and services for cash. His ability to master these three skills is what will enlarge the wealth of the family. The second responsibility successors have is to accept the baton of leadership. This means that successors must agree to lead the family business and wealth. They must truly be interested in taking over from the wealth creator. When leadership is forced, it is rarely successful. Only Successors who desire to lead will increase the family’s wealth. These are the two responsibilities os a successor.
The other type of asset a family needs to grow wealth is the existing financial asset. Financial assets are divided in to two types. The first is the Investment Asset and the second is the business asset. To grow investment asset a family must have an investment strategy. That is an agreed-to investing plan that explains the reason why an investment is necessary or why it should be purchased. Investing for any other reason aside reasons that grow family’s wealth is a way to erode wealth forever. Without a philosophy that guides how money is invested, where it is invested, how assets are optimized, protected and preserved. Investment decision becomes emotional and ego based. For wealth creators and successors to preserve wealth, they must hold every investment accountable for their contribution to wealth. If wealth creators display a random style of investing, successors will follow their footsteps. Without an Investment strategy it is very easy to lose family money especially when the wealth creator is no longer alive.
To grow a Business asset, a family must have a business diversification strategy. A business diversification strategy is a list of principles that guides the expansion, acquisition and diversification of a business. Uncontrolled Diversification can lead to the loss of wealth. When money is taken out of existing business to invest in other businesses without the necessary assessment for profit, wealth is diluted. The key questions for wealth creators and their successors to answer is this? What kind of businesses should we diversify into? How do we define a Profitable Business? Where do we find them? What do we do to increase their value when we find them? What kind of businesses should we never diversity into? And so on. Every business investment must be held accountable for its contribution to family wealth.
Growing wealth in a family across many generations is an intentional process. It requires certain preparation and the development of certain skills. Without these important steps, wealth is destined to die.
If you are a wealth creator and need help making your wealth last for many generations, we can help you. We will make it certain for your wealth to last, help you develop sound investment and business diversification strategies that will be effective long after you are gone. To see how you can work with us send an email to [email protected].
Whether your family stays rich or poor depends on what you choose to do now. There is no way wealth will last if you keep doing what you are doing. Every new goal requires a change. You must be willing to do the things you absolutely do not want to do.
Grace Agada
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