Succession Planning

Key to business Succession planning involves identifying objectives and implementing strategies to deal with management and ownership succession, to ensure a smooth transition for the business and continued profitability.

In short, succession planning is an exit strategy, and involves different issues and strategies for family and non-family ownership situations.

Some succession planning myths:

I am immortal
My beneficiaries can do the planning once I am gone - they will work out their differences

It is better to have considered the tricky problems while they are hypothetical, rather than wait until they are real. Most succession planning commences after a crisis, for example death, disablement or divorce, with no plans in place, and turmoil is created. The following possibilities can then arise:

that the business will cease and assets will be liquidated, which is more common where the business is closely tied to the owner's personal ability
that the owner's share of the business will be sold to an external party
that existing partners or family will continue to run the business, sometimes with the retiring owner or deceased's family retaining a passive involvement
that the estate will not be administered in accordance with the deceased's wishes
that the business will end up in the hands of the wrong person

The role of the business adviser

Viewing the adviser report The development of a successful succession plan requires a team approach between your accountant, financial planner and solicitor, and the tools of a successful plan include:

personal estate planning
buy/sell agreements
powers of attorney
documents dealing with management succession
documents dealing with ownership succession
general business plans and agreements

Some of the issues that need to be addressed by a succession plan are:

identification of risks
selection of the management successor and preparing them for the role
transfer of asset ownership
funding of the transfer of asset ownership
income tax, GST, and capital gains tax issues and concessions
estate plans
retirement, superannuation and personal financial security requirements
insurance issues
business ownership structures and strategic plans
family/business communication
government charges including stamp duty

Business succession planning

Why is it important to have a succession plan?

Succession plan Development of a succession plan can have many personal, family and financial benefits including:

better relationships between business members, including increased personal motivation
increased financial security for business owners, including the possibility of increased worth and funding
guidelines for continuing control and ownership of the business when you cease to be an owner, ensuring that resources go to the parties you have chosen

Every family business must face the challenge of succession planning at some time.

83% of all businesses are family businesses
56% are facing generational change over the next ten years
nine out of ten businesses have no written succession plan
three quarters of businesses have not sought advice on succession planning
only 30% of family businesses will succeed from the first to second generation and only 15% from second to third generation
the majority could benefit from professional guidance to work through what can be quite complex issues

Ask yourself the following questions. If you answer no to any, please contact Carrick Ashmead for a confidential interview to discuss your position.

do all generations have a retirement plan?
have all family members considered their financial security?
are all family members able to achieve their own plans and goals while continuing to work in the business?
is everyone clear about their role in the business?
does your current role in the business satisfy you?
does your current remuneration satisfy your needs?
does the business have a business plan and clear vision for the future?
is internal conflict or a lack of vision negatively impacting on business profitability?
have you adequately provided for your children's educational expenses?
have you determined what you expect to receive in the way of either business or non-business assets?

Farm Succession Planning

Why is it important to have a Farm Succession Plan?

Farmer holding wheat Development of a farm succession plan can have many personal, family and financial benefits including:

better relationships between the family members involved, including increased personal motivation
increased financial security for each generation
better and more profitable management
direction and clarity of goals
less chance of a will being challenged. As a legal challenge is money lost to the estate, a plan can ensure that resources go to the parties you have chosen.

While farm succession or transfer can involve the writing of a will, it is more than that alone - it is an exit strategy.