Many people postpone estate planning until the “right time,” which seems to be when the…
For various reasons, business owners put off developing a business succession plan. For example, they might be afraid of dying and avoid talking about what will happen, or, they might also find it challenging to choose a successor from among their children or other family members, or they might even be unwilling to relinquish the company’s leadership while still alive.
According to Family Business Australia, a staggering 70% of all businesses in Australia are family businesses and choosing a suitable ownership structure for the next generation is one of the top five issues family businesses face.
Even when it is clear who the successor will be and how the firm will be run, failing to properly record your preferences frequently leads to disagreements and expensive errors.
What Alternatives Do You Have for Planning a Business Succession Plan?
Choosing a family member as the successor for the company: Most business owners want to give the reins to an adult child. This choice enables you to maintain control over the organisation and ensure that your ideals are upheld.
You might choose to appoint a caretaker manager to operate the company temporarily until your child can assume the position if your youngster isn’t ready to take over due to age, maturity or other issues.
Selling the company to a third party: In some situations, there may not be a family member who is able or willing to take over, so you may decide to look elsewhere. Ideal candidates for this position include current senior employees or trusted business partners you have already worked with.
Liquidating the company: If you are unable to find a suitable replacement, you could opt to permanently close the company by liquidating its assets and clearing any outstanding debts. However, liquidating the company is less likely to make you money than selling it to the current manager or a third party.
Understanding Your Options
Determining who will inherit your wealth and, more significantly, who will manage the business operations with the family’s legacy in mind, creates many challenges. It is best to work with a team of professional advisers including a financial planner, accountant and solicitor to ensure your strategy is thoroughly researched from all aspects and there are no potential negative consequences to you or your beneficiaries.
Issues of inheritance, sibling suggestion, dedication, and the capacity of the next generation co-exist with the pressures on all organisations to look after staff, meet the demands of their marketplace, and maintain business growth. Due to the ageing population and the potential for family rivalry, the next generation of ownership and management may be tough to attract as well as coordinate.
Effective estate planning, however, can mediate and address each of these issues.
Regardless of your marital status, family structure, and size of your business, every business owner needs basic estate planning documentation. You should think about the potential value of your company and understand that it depends on you to decide its fate, should you become permanently incapacitated or pass away.
Protecting your Professional Legacy
If you own a business, you may sell it before or after you pass away or retain it within your family. Whatever alternative you choose, thorough planning and financial advice can secure your company’s ability to continue operating and be shielded from unforeseen financial and operational risks.
At Newcastle Financial Planning Group, we are experienced in working with small business owners to realise their retirement aspirations and make the right decisions for their financial and personal assets should they pass away. Call us or book online to secure your first appointment with us today and get started!
DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.