If you’ve recently set up your dream business, then you’ll know that a ton of planning is essential for every aspect. This involves planning the product creation to finding the right insurance coverage and everything in between.
A key aspect of your planning also involves creating the necessary succession planning. Fortunately, this can easily be done by the wills and estates lawyers Melbourne business owners rely on as part of their future planning. No matter how small your family business is, succession planning is essential. Keep reading as we explore the top reasons why.
What is Succession Planning?
A sudden change in leadership can present a challenging adjustment period for any business, no matter the size or nature of the company. This type of change can happen when the current leadership retires, sells their shares in the company, or passes away.
With this in mind, succession planning has become more essential than ever. Essentially, this concept can be defined as a proactive strategy to ensure a smooth and hassle-free transition of ownership or leadership. The process starts by identifying and upskilling potential successors to take up the reins. This will ensure that the organisation can operate effectively before, during, and especially after the leadership has transitioned.
Having an effective succession plan in place for your family business will ensure that your business can continue to exist after your passing. It will also ensure that your employees don’t suddenly become unemployed and prevent issues with business ownership.
Understanding the Positives
There are several key reasons why your business should have a succession plan in place. Our team of legal experts have shared the most significant reasons to highlight why developing a succession plan is crucial.
1. Preserve Your Family Business
Setting up a successful family business is an excellent way to ensure that your family has a reliable source of income for at least two or three generations. In addition to key business planning, a comprehensive succession plan is the best way to ensure this. Having a credible succession plan in place ensures that the business can easily (and legally) continue.
Aside from this, having a well-planned succession plan also keeps everyone in the loop, reducing the likelihood of unclear expectations. Keep in mind that your business should ideally not be the cause of family rifts and miscommunication.
2. Protects Your Business Financial Security
In many instances, a business becomes the family’s largest financial asset. If correctly managed, this business can sustain the original owner well into retirement and then support the next generation.
Succession planning ensures that rushed transitions or issues such as unexpected taxes don’t erode wealth generated by the business. Failure to implement this type of planning can see you or your children having to work longer than initially planned to recover lost funds.
3. Allows for Tax Implications to be Minimised
When a business experiences a transition in leadership or gets put up for sale when the owner dies, it can experience a significant tax impact. This can see relatives being left with very little to no profits. Fortunately, a successful succession plan can go a long way toward avoiding this.
Lawyers specialising in succession planning often apply several techniques and strategies to avoid this. Some of these can include the following:
- Helping you to optimise your business structure.
- Stage the eventual transition over several tax years.
- Using various trust strategies for all family business transitions.
- Implementing small business CGT concessions.
Keep in mind that none of these strategies can be implemented from one day to the next. This is why succession planning should begin when you create your business.
4. Allows for the Best Possible Transition
Taking over the leadership of a family business requires extensive knowledge of all the business interactions and processes. This usually involves considerable training long in advance. Having a succession plan in place will give you adequate time to choose and train the best person to take over the business long before it happens.
Not only will this ensure that your company is left in good hands, but there will be no surprises when your estate and asset planning is announced. It will also ensure that you don’t leave your business to a relative who may not be interested in the type of business you have.
A concise succession plan also allows you to ensure that your spouse or minor children continue to be taken care of with shares or profit income streams. This not only gives you peace of mind, but also gives your family assurance that they won’t be left destitute when you pass away.
Final Thoughts
A succession plan is a crucial aspect of every business’s growth and continued success. This is especially important if you want your business to continue providing an income for your family, or if setting it up was a shared goal or partnership.
The most significant reasons for this include giving a successor time to learn and prepare for leadership, sustaining your family income, and mitigating overall risk. Speak to your estate planning lawyer to get the process started. You and your family will be glad you did!