What do we mean by ‘business succession’?
Succession is the passing of something from the current holder to the next holder. For simplicity you might think of it as ‘passing a baton’ as in a relay race. Sometimes succession happens in an orderly, planned way – and on other occasions, it is thrust upon us. Business Succession is no different:
- we can plan for it; or
- we can wait for events to catch up with us,
it is about passing your business interests on to the next owner: whether a family member or a purchaser.
When does business succession occur?
The two main events for which Business Succession Planning is undertaken, are:-
- ‘retirement’ (see more below); or
- death.
‘Retirement’ in this context, means termination of involvement with a business due to a number of possible reasons, including:-
- Changed circumstances/ interests (‘moving on’, as they say);
- Incapacity (physical, or mental);
- Bankruptcy; or
- Age-based.
By planning for these events they can occur without significant disruption to either the business or to your financial well-being. Having appropriate strategic succession plans in place, facilitates an orderly ‘passing of the baton’ to the successor business operator.
What does business succession planning entail?
Business owners, whether operating single-family businesses, or in partnerships, are encouraged to engage in business succession planning. They should ensure that these plans are clearly documented – including support with all ancillary agreements. Business succession plans are critical guidance for the guidance of those who follow: the successors. They are relevant to all business types and structures whether incorporated or not. Experience shows that funding with risk insurance can also be very useful.
Typically, a business succession plan will incorporate –
- both a partners/ shareholders agreement; and
- a buy-sell agreement. (The buy-sell agreement will usually be funded with relevant and adequate insurance policies. Refer to our article Buy-Sell Agreement cover for more on this matter.)
The other important element of business succession planning is the strategic plan for the business. This is another area for accountants, business consultants and potentially, other specialist advisers. Supporting a succession plan with a strategic plan driving a business that is profitable, sustainable and saleable is also recommended.
What to do next:
Continuum Financial Planners Pty Ltd can guide you in actions to assist with the preparation of plans for your circumstances. Our experienced wealth management advisers can also support your plans with advising on – and recommending, appropriate insurance policies to meet various aspects of the business succession strategy.
To arrange a meeting with one of our team:
- call 07-34213456 or
- use the linked Book A Meeting facility for prompt attention to consider the steps to secure your financial future in respect of your business operations.
We thank Cornwalls Lawyers (formerly McKays Solicitors)for allowing us to base our article on this topic on material found in their website.
[This article, originally posted in January 2010, has occasionally been refreshed/ updated most recently in August 2024.]
