The
Importance of Business Succession Planning for Owners
As financial planners, we often meet with hardworking business owners who have not given enough importance to their succession planning. Succession planning involves preparing for the transition of ownership and control, not only in the event of death but also if an owner becomes incapacitated or chooses to exit the business.
A staggering 70% of business and wealth transfers fail between family generations, and yet fewer than a third (28%) of surveyed family businesses have a constitution or protocol in place.
Source PWC Family Business Survey 2021
Below are five considerations that we would address in conjunction with an accountant and lawyer as needed:
- Recognise the need for a plan
A succession plan should be created early in the life of a business, involving all stakeholders (family, partners, and employees). This plan prepares for various scenarios, ensuring continuity in case of retirement, incapacity, or death. The plan involves deciding who will take over, when, and how. - Distinguishing personal and business assets
It’s important to differentiate personal assets from those owned by the business. A well-drafted succession plan clarifies asset ownership, especially in family businesses where younger generations may wish to take control while navigating relationships with non-family partners. - Valuing the business
An accurate business valuation needs to occur regularly. The business value may have changed significantly, impacting succession options such as transferring to a family member or selling to a third party. - Insurance
Business insurance supports the continuity of profits if a key individual dies or becomes incapacitated and can facilitate the transfer of ownership. It’s all about ensuring the right amount of money is available, at the right time, with no nasty tax surprises! - Establishing Power of Attorney
Having a Power of Attorney is essential, particularly for owners approaching retirement. This document appoints a trusted person to make decisions on your behalf if you become incapacitated, ensuring that your plan can be executed effectively. - Understanding tax implications
Different transfer methods can have varying tax consequences, including capital gains tax and other potential liabilities. Small businesses may be eligible for tax concessions if certain conditions are met.
With approximately 1.4 million business owners approaching retirement age in the next decade, it’s essential to understand and start succession planning early.
Craig Kirkwood ADFP
Authorised Representative (No 401525)
