f

Get in on this viral marvel and start spreading that buzz! Buzzy was made for all up and coming modern publishers & magazines!

Fb. In. Tw. Be.

A nine-point guide for family income management

By Naveen Khajanchi

Finance or Money can be a source of happiness and a reason to be glued together for a lot of families. It’s a lollipop that everyone wants to have and not lose out on. Communication is the currency of family owned business (FOB), which helps in ensuring that everyone gets their due share fairly and transparently. Founders typically feel they need no one’s permission to do or buy what they want to .There is fear that "if I give up command & control, no one will listen to me"… they enjoy keeping people in suspense . After a point when the first generation and the founder get old, issues of finance need careful handling. Most founders want their presence in absence, but never get into planned succession planning or handling of money.

I feel it’s important for founders to set ground rules in their presence & possibly see transition of finance & responsibility. A founder who was wise enough saw that things were getting murkier and there was a lot of blame game going on. At home also, disparity in lifestyle was leading to a bad atmosphere. Each family member was taking the other for a ride – not realising that if too many holes were poked, the ship would sink. Cousins & their wives seemed to be simply not bothered about expenses, and there was an unsaid competition amongst each other about who buys the latest and most expensive stuff – at times resulting in unthinkable wastage. Focus from business competition shifted to wrong things.

So, he set out a clear agenda:

1. No member shall suffer for lack of food, medical treatment, or basic education as a result of not having money. Older members would receive lifelong pension and care. A trust was created wherein each brother put in a share and the FOB contributed to the same. This trust could only invest in SAFE securities, and any reimbursements would have to be approved by more than tho-third of the members.

2. 25 per cent of the profits made by the company had to be ploughed back into safe investments so that during bad times, salaries, operating expenses etc. could be met
3. Loans could be taken only for working capital needs and needed to be squared off at the earliest.

4. 25 per cent of profits were to be used for technology upgradation and if not used, had to be kept in a separate fund for future use. He saw IT, systems and technology upgrade as the need of the hour.

5. All borrowed lifestyle expenditure like fancy cars, gadgets, holidays, jewellery were to be done from personal expense accounts of members. Investments in stocks, etc. were also under this head .

6. Girls would have equal share and a right to join the business but their husbands or children could only join with the approval of other members. If two-third members approved, then any member could be asked to take time off from the FOB.

7. Any member doing personal business shall not draw any salary from the business nor use any asset. His share of profit as shareholder shall be credited to his/ her account. Basic rights of point No. 1 shall be there for all family members.

8. A compulsory retirement age was set and succession to leadership operating roles was not guaranteed by age / seniority but by merit and past results.

9. Any other items had to be taken with two-third consent with a caveat that even if members approved, the parent firm would never borrow more than 25 per cent of its net worth or invest in stocks or any kind of speculative activities. If a loan has been taken, then priority is to be given for repayment even if it means lower dividend.

Many families have survived for generations and kept their relationships alive with love due to good financial planning and communication. When founders turn stewards, their lens of legacy building becomes active. This, in turn, lays a deep foundation for the next gen. The culture of such an FOB, needless to say, would be of values & trust at all levels.

The writer is CEO & Director of Executive Search Service, A Div of NKH Foundation

Post a Comment
By clicking on Register, you accept T&C
X
X