If you are running a family business, you have a unique opportunity to financially educate your children over and above those of everyday employs. The amount of money within a family business and the financial reporting obligations that a business creates unique touch points for children to understand how money moves, breathes and is tracked within a business.
- Introduce your children to your advisors
If your children are over 16 it could be opportunity to introduce them to your legal, accounting, tax, lending and investment advisors. The opportunity to see adults talking about money within a business setting and the access to high quality advisors well beyond the age that other children can will often give a child a unique insight into money and business that gives them an appreciation for the efforts of the parents and the importance of caring for money.
- Get your children involved in money management
If you are running an investment portfolio like properties or self-managed shares – get the children to undertake minor administrative tasks in the ongoing maintenance of what you are doing. Simple tasks like raising rent invoices to commercial tenants with GST, reconciling credit card accounts and filing paid invoices within your cloud accounting program like Xero will help a child understand the concepts of money and business management.
- Get your children to take control of small entities
It is not uncommon for a family business to have several tax structures outside of the trading business. Often the factory will be owned in a family trust and a separate employment hub of administration staff will charge wages to the trading entity.
Giving your child full reporting control (with management oversight) for balance sheet reporting and profit and loss reporting will be a significant life skill later on. Alternatively encourage your children to participate in tasks like preparing the companies fringe benefits tax return.
- Focus on the forecasts
With the benefits of forecasting software like Futrli most family businesses now do 3-way forecasts (so a forecast cashflow, balance sheet and profit and loss) for ongoing management and lending purposes.
Walk though with your child the importance of goal setting in your family business, setting a budget and then reflecting back on how the budgeted outcome was achieved or failed. Demonstrating this discipline by example will show to your children the importance of goal setting, budgeting and how could technology can streamline and simplify the budget setting process.
- Consider the ASX Share Market Game
The ASX run a free “Share Market Game” where a child can share trade $50,000 on the ASX and compare their performance to others. So consider setting up a few family accounts where the family compete against each other and get the children interested in the ASX and how it operates.
One strategy is to let your child open two accounts – one as a “dodgy share tips” account and the other as part of a disciplined share strategy. Over time of course (maybe a few goes) the disciplined strategy should win out.
- Talk to them
If you are successful you will likely have signs of success – your house, car and if you sent your children to private school. So simple “not talking about it” can sometimes lend to overinflated “guesses” of wealth. So, talking about how the family wealth and the family business was created, together with the war stories, can give your children an appreciation of how you became successful and the sacrifices you made to get there.
- Pay them a salary
If your teenage children are working in your business (maybe doing the tasks discussed above) consider paying them a commercial wage for their efforts. And with the commercial wage talk to your kids about goal setting and having one bank account for saving, one for spending and one for giving (if that is a family value). This could even include saving to purchase a house for a child.
The importance of budgeting even a small wage for a child is invaluable. And the commercial salary you pay them from the family business will be tax deductible to the business and normally tax free to the child (as their income is typically under the tax free threshold).
- Buy them books
While your children may not read the books – give them books on money management – the simple act of giving the books will show to the child how important you think the topic is. Great starter books include “Rich Kid Smart Kid” by Robert Kiyosaki, “Barefoot Investor for Families” by Scott Pape or “The Opposite of Spoiled” by Ron Lieber.
The earlier you educate your children about money, and the earlier they start of actively working on wealth, the greater the chance that compounding will work for them.
As owners in a family business: you have a long term succession plan in place when the children are born. You are educating your children so they can leave home and become functional adults. And you are educating your children to take over the business, and the families wealth (even if it is a cash payment only).
At Westcourt we have one focus – families in business. And family succession, which includes educating the next generation to take control, is a critical and unique element of a family business. The movement of money within a family business and a family property and share portfolio together with its succession and tax impact is unique. So engaging Westcourt – with a single focus, international depth, and independence of advice – is a logical first step.
