Everyone has heard the term ‘business succession’ for a while now but what does it really mean?
On a practical level, succession refers to transition. Naturally, transition means different things to different people, especially when dealing with families in business. Commercial considerations, family dynamics, balancing expectations and family legacy pave the way for the succession journey for families in business.
Typically transition occurs in two contexts; ownership and control. Preparing your business and your family for transition requires a sound strategy, thorough preparation and open communication. It also takes time, so planning should start well before you need to exit the business.
Plan to succeed
When planning to transition your business, you can be faced with numerous commercial issues including:
- Whether you want to exit the business altogether (sell the business) or only step back from working in the business.
- Are you ready to transfer any or all of the control and / or equity in the business?
- Whether the business can continue to operate successfully without you
- Does your business have systems, processes and the right people required to run the business without your daily operational input?
- Is there a key family member or employee prepared and ready to take over the running of the business?
Ensuring you have a business structure conducive to transition before you embark down the path of putting any plan into action is vitally important. Equally as important is that you have the right documentation in place to enable you to transition smoothly and tax effectively. Ideally, your legal and tax/ accounting advisers should work collaboratively to produce a strategic road map to assist you achieve the best possible commercial outcome for the transition of your business.
Its not all about the numbers
Where family is or is likely to become involved in the business, a whole other range of personal and interpersonal issues need to be considered:
- Your vision for your family and the business and how this is to be communicated to all relevant parties.
- Alignment of your expectations and those of your family members.
- What criteria, if any, you expect family members to meet before they can assume any control and/or ownership of the business.
- Are your business and personal affairs structured appropriately in order for transition of the business and its assets to take place over time?
Legal advice should be provided in the broader context of the above issues. You should seek advice about how business and family assets are held (whether in personal names, trusts or other structures), whether existing structures and relevant trust deeds need to be amended (if viable to do so), and what documentation needs to be put in place to ensure the family can retain control of, protect and preserve the business assets into the future. Obtaining advice in this context will ensure that the family issues pertaining to the business are aligned with your commercial objectives.
Don’t forget your estate plan! Once succession plans are well on the way, your Will and estate planning documentation needs to reflect the ‘big picture’ so that the business transition and ownership of family assets continues according to your family’s agreed plan after your passing.
Embarking on the process of transitioning control and/or ownership of a family owned business is an opportunity to have open and robust discussions with your family about your expectations and the role of the business in your family, including any legacy you wish to leave to future generations.
It takes more than a lawyer and an accountant to deal with the intricate issues faced by families in business when considering transition issues. Fotini Kypraios is a Specialist Accredited Adviser with Family Business Australia and a founding member and Chair of the Family Business Consultants Network (“FBCN”), which is a collaborative group of professional advisers, united in their expertise in family owned businesses.
FBCN is a dedicated team of collaborative advisers who understand the issues faced by families in business and they assist planning and implementing all aspects of family and business transition, from helping families break through and resolve conflict, providing access to communication and psychology professionals, through to business transformation, finance, tax, legal and estate planning advisory services. For more information about FBCN, visit www.fbcn.com.au.
To find out more about how we can assist you and your family with planning and implementing a successful family business transition, please contact us.