New Family Business Calculator Helps Gauge the Financial Future For Your Kids
Chicago Il (Vocus/PRWEB) March 23, 2011
Richard A. Morris, co-author of Kids, Wealth and Consequences: Ensuring a Responsible Financial Future for the Next Generation (Bloomberg, a Wiley imprint, 2010), 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.”
Morris, explains that “the rocky economic conditions plaguing the U.S. since 2008 have had almost everyone wondering about their financial future, and family business owners are no exception.”
Many factors contribute to determining if the next generation will be as well off as the current business owners, including psychological issues such as: At what age do the kids expect to achieve the lifestyle Mom and Dad have right now? Morris explains, “Many kids want to match their parents’ 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 factor in their own family’s value system depending on how many years they enter into this section of the calculator.”
The FBGC calculator allows users to enter their assumptions about long-term inflation. “Assumptions between 2% and 4% are most commonly used,” says Morris. “Inflation is a hidden factor that affects spending power. For example, if inflation averages just 3 percent per year over 20 years, a person whose lifestyle allows them to spend $100,000 today, can project how much they will need to spend in 20 years to buy the same goods and services. Many people are surprised to learn that the answer is nearly twice that amount: $180,611. “
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 family business profits need to grow to support future generations at the current standard of living. If the parents want the business to support three of their children, the business will need to grow at 6.8% 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.”
Kids, Wealth, and Consequences helps affluent parents and their advisors understand how affluence affects children’s future success, happiness and motivation. The book explores everything from how and when parents should talk to their children about the often-uncomfortable topic of money to what affluent families can learn from the economic meltdown about spending, saving and investing to help them better prepare themselves and their children to survive in any economic environment.
Jayne Pearl is a journalist and entertaining speaker, focusing on family business and financial parenting. She is author of Kids and Money: Giving Them the Savvy to Succeed Financially (Bloomberg Press) and has co-authored or ghost-written ten other books. Jayne began her career at Forbes and was former senior editor of Family Business magazine, to which she has contributed for 20 years.
Richard Morris is an adjunct professor at the Lake Forest Graduate School of Management and is principal of ROI Consulting, helping family owners expand and pass down their business to subsequent generations. Previously, he worked at his family's 80-year-old privately held company, Fel-Pro Incorporated, managing Marketing and then Acquisitions, and serving on the Board of Directors until its sale in 1998.