Key takeaways
- Heirs do not need to be able to keep the books, but they must read the numbers, ask the right questions and make decisions knowing where the cash and the risks are.
- Teaching works when it uses the company's real work and hands over decision-making authority step by step, within defined limits.
- An external mentor is useful when conversations between parent and child about work turn into family matters.
A son or daughter graduates from an overseas university and returns with new ideas and a new business vocabulary. But when they open the company's financial statements, they cannot tell why profit looks good while cash is tight. The father chooses not to let them decide anything, so the child never gets a chance to learn. Five years on, the father is still firmly in charge, and the child is still an assistant who happens to share the owner's surname.
It is like teaching someone to drive. Watching from the passenger seat will never teach them, and sending them straight onto the road is dangerous. What works is real driving with someone sitting beside them, moving gradually from the side street to the main road.
What is financial readiness measured by?
| Competency | Passed when the heir can | Real work used for practice |
|---|---|---|
| Reading financial statements | Explain the difference between profit and cash in their own company | Present the latest month's financial statements to management |
| Costs and pricing | Know the margin by product or by branch, and know what is eroding it | Prepare a margin bridge for one quarter |
| Cash flow | Say when cash will be tight over the next 13 weeks | Own the cash flow forecast |
| Debt and banks | Know the facility terms, covenant and headroom | Attend the facility review meeting |
| Investment | Propose a project with its return, funding and exit point | Write an investment memo for one project |
| Basic tax and law | Know when to ask an expert | Review the annual tax issues with the adviser |
Example: a practice exercise from a new-branch proposal
A hypothetical example: the heir proposes opening a branch. The investment is THB 8 million, depreciation is THB 1.6 million a year and EBITDA is THB 2.4 million a year. The branch is funded with a THB 5 million loan, with first-year interest of 6% and principal repayments of THB 1 million a year. Tax is 20%.
| Questions the mentor should ask | Answer |
|---|---|
| Payback from EBITDA, in years (8 ÷ 2.4) | 3.33 years |
| Profit before tax without borrowing (2.4 − 1.6) | THB 0.80 million |
| Tax without borrowing (0.8 × 20%) | THB 0.16 million |
| Cash flow after tax (2.4 − 0.16) | THB 2.24 million |
| Payback after tax (8 ÷ 2.24) | 3.57 years |
| First-year tax with borrowing ((2.4 − 1.6 − 0.3) × 20%) | THB 0.10 million |
| First-year debt service (interest 0.3 + principal 1.0) | THB 1.30 million |
| First-year DSCR ((2.4 − 0.10) ÷ 1.30) | 1.77 times |
The point of the exercise is not the formulas but the questions that follow. For example: will first-year EBITDA be achieved in full? If it falls by 30%, what is the DSCR? And if the branch opens and misses its target, when will it be closed and how much will it cost?
The authority handover ladder
This table is an example. The limits must be adjusted to the size of the company and the delegation of authority actually in use.
| Stage | Heir's role | Decision-making authority |
|---|---|---|
| Months 1-6 | Rotate through accounting, treasury, sales and operations | None. Prepare reports and ask questions |
| Months 7-12 | Own a report, such as the forecast or margin | Give an opinion every time, before the senior decision-maker decides |
| Months 13-18 | Run one business unit or branch | Approve within budget, up to a set limit |
| Months 19-24 | Lead performance meetings and meet the banks | Decide at business-unit level and report results to the board |
The promotion criteria must be agreed before the programme starts and apply to the heir in the same way as to other executives. When the heir makes a mistake within the limit they were given, review it against the numbers rather than withdrawing authority immediately. Otherwise everyone learns to wait for the father to decide, as before.
What parents should teach, and what outsiders should help with
Founders are best placed to teach
The history of past decisions, the reasons behind old agreements, how to read people and business partners, and lessons from crises the company has been through
Outsiders can help with
Frameworks for reading the numbers, practice in writing memos, asking hard questions, and acting as a go-between when talking about work turns into a family matter
When coaching becomes a family matter
Conversations between parent and child at work often have a longer history than the task at hand. Criticism of the numbers may be heard as rejection, while a question from the child may be heard as a challenge. It helps to agree some simple rules: work is discussed in the meeting room, family matters outside working hours, and professional managers report through the line, without fear that the heir will pass things on to the founder first.
Existing executives also need to be looked after. When the heir arrives, long-serving staff may worry about their positions or hesitate to admit mistakes. The founder should be clear about who reports to whom and expect everyone to be held to the same criteria. The heir should start by learning from these people, not by changing everything in the first quarter.
Training progress should be reported periodically, not left until the day the heir takes up the role. Every six months, the mentor should summarise which decisions the heir has made, where they went wrong and what further training is needed. If it becomes clear that the heir does not want to do the job or is not suited to an executive role, the family should hear that truth early. A good option may be for the heir to be a knowledgeable shareholder while professional executives run the business, which still preserves ownership.
Next steps
- Assess the heir against the competency table, with the founder and an outsider scoring separately.
- Choose one piece of real work for the heir to own within 30 days.
- Put the authority handover ladder and the promotion criteria in writing.
- Have the heir meet the auditor and the banks at least once a year.
- Ask the founder to record major decisions and the reasons for them.
- Consult an external mentor when family discussions begin to stall.