Knowing the growth rate a business needs to support future generations can motivate everyone in the family business to achieve these goals.
Evanston, IL (Vocus/PRWEB) April 18, 2011
The rocky economic conditions plaguing the U.S. since 2008 have had most everyone wondering about their financial future, and family business owners are no exception. Now family business owners have access to a new online calculator that can help them appraise the potential lifestyle that awaits their children. Richard A. Morris, principal of ROI Consulting, Evanston, Ill., and creator of the Family Business Growth Calculator (FBGC), explains, “Most family business owners have the goal of leaving to their kids a business that will provide a lifestyle as good as theirs. This calculator helps owners see if that goal is achievable and figure out how much they will need to grow their company to reach it.”
Many factors contribute to determining if the next generation will be as well off as the current business owners. These include psychological issues of choice such as: At what age do the kids expect to live the lifestyle mom and dad have right now? Morris says, “Your kids will likely want your current lifestyle by the time they reach age 30. Some might say that sounds very entitled, while most kids of business owners say it is an unwritten promise of coming to work at the family firm. The online calculator allows owners to enter in their own family’s value system surrounding this question.”
Inflation is a hidden factor that affects spending power. For example, assume inflation at just 3 percent per year over 20 years. If one has a $100,000 lifestyle today, what will be needed in 20 years to buy the same goods and services? The answer is nearly twice that amount: $180,611. “The FBGC calculator allows you to enter your assumptions on inflation, as all of us may have a different view on what it might average over the next period of time. Assumptions between 2 and 4 percent are most commonly used,” says Morris.
A third factor to take into account is how many of the owners’ children the business will need to support in the future. The FBGC calculates what Morris calls “intergenerational equity” -- how much the family business needs to grow profits to support future generations at the current standard of living. In this example, assuming there are three children or families to support, the business will need to grow at 6.8 percent each year.
“Knowing the growth rate a business needs to support future generations can motivate everyone in the family business to achieve these goals,” explains Morris. “If the goals are not achievable, changing all of the family members’ expectations early may avoid family fighting in the future.”
Richard Morris co-authored the book “Kids, Wealth and Consequences: Ensuring a Responsible Financial Future for the Next Generation (Bloomberg Press).” He is principal of Evanston-based ROI (Resource for Ownership Intelligence) Consulting which helps family owners expand and pass down their business to subsequent generations. He also provides family business education, consulting and strategic planning for cooperatives, franchises and associations, and is an adjunct professor at the Lake Forest Graduate School of Management. Previously, Morris managed marketing and acquisitions for his family's 80-year-old privately held company, Fel-Pro Incorporated, and served on its Board of Directors until the sale of the business in 1998.
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