In a Previous article I mentioned the ‘Legacy Business’; that is a company created by hard working people, passed to not so hardworking children, who pass it on to wastrel grandchildren.
The term is; “shirtsleeves to shirtsleeves in three generations” which means the wealth gained by the first generation will be lost by the third.
The truth of the adage as been proven time and again. It affects Ninety per cent of family fortunes. The number might be shocking, but if one did a simple search of ‘1900 Millionaires’ how many would appear in ‘2000 Millionaires”?
In some cases, the money disappears, it has been poorly invested, spent. In other cases, due to poor management, the business itself is lost.
Excuses are often given as taxes, inflation, bad investment decisions or the dilution of assets shared among the heirs. The truth, however, is a bit clearer.
Younger family members are unprepared or unwilling to shoulder the responsibility of the business. They are born and have grown up with a great deal of money and are far removed from the work ethic of those who made the fortune.
The sense of ‘entitlement’ the children or grandchildren are raised with blinds them to reality. They feel everything is coming to them, and don’t see the reason they should work hard, gain any kind of competence. They are concerned with selfish pleasures, spending, not making money.
They show little interest in the business.
Unless the parents virtually force them, from a very young age, onto the ‘shop floor’ and into the boardroom, striving to gain their interest and involvement, it is almost certain that the billion dollar business created by Grandpa will be gone by the time Grandson becomes a father.
These companies, can, if a clever purchaser arrives before the public becomes aware of the rot, be sold and maintain prestige.
Too often, however, the third generation is totally unaware of the real market value, asks too much, and winds up in bankruptcy.
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