7-reasons-to-review-your-succession-plan-editThe focus for most business owners is frequently on business goals. Yet most go into business with personal and financial goals such as providing for their families and creating wealth.

A key component of succession planning for business owners that is completely overlooked or not attended to correctly is planning for unexpected events such as the loss of a key person or business owner due to death, injury or illness.

Whilst it is a difficult subject to discuss amongst business partners, a lack of planning for these unexpected events may result in you paying double or triple taxation on your exit from a business, failing to pass your wealth securely and tax efficiently to your family, estate disputes and business failure for the ongoing business owners.

The following are 7 reasons to make sure your business succession plan considers the impact of unexpected events.

7 Reasons to review your business succession plan

  1. Market Valuation

It is important to make sure you have a process documented to arrive at a fair value for the business. Your interest in the business is usually deemed to be disposed at market value for tax purposes. If the consideration you receive is less than market value then you may have a taxation liability for money your estate is not going to receive.

The valuation methodology should be reviewed regularly as the business grows to make sure it is still relevant and reflecting its current valuation.

This can be difficult as there is not a readily available market for most small medium enterprises (SMEs) and the valuation is subject to ongoing change. However establishing a market valuation is a crucial step.

You may have unrealistic expectations regarding the value of your business and by having it professionally valued you can then undertake business improvements strategies to grow your business and be in a position to demand what you think it should be worth.

  1. Protection of assets of the deceased

For most small business owners, your business is also your “superannuation” and represents a large portion of your overall family wealth and is being relied upon to fund current lifestyle requirements but also is held with the expectation that it will be sold at some point and the proceeds be used for retirement planning.

A documented business succession plan can provide the families of the business owners that if there is an unexpected event, they can be certain that their lifestyle will not be comprised and that they will be still able to achieve their personal and financial goals.

  1. Protecting the business for the survivors

Many issues could affect on the continuity of your business as a result of an unexpected event.  The loss of a key person may have an impact on profitability and revenue, loss of an owner could result in a reduction in security used for finance.

Planning should consider how these obstacles will be overcome for the survivors so that your business continues on without interruption.  Issues to be considered include security required for borrowings, cash flow requirements for the outgoing business owners and impact on profitability on the loss of a key person and how they could be replaced.

  1. Estate Planning

A legal document is required to document the plan. This document is commonly known as a Buy Sell Agreement and should be prepared by Solicitors who are well versed in taxation and accounting matters. To prepare a Buy Sell Agreement requires input from your solicitor, accountant and financial adviser.

In conjunction with the preparation of a Buy Sell Agreement, a review should be completed simultaneously of your personal estate plan. The proceeds from a disposal of your interest need to be paid to the beneficiaries of your choosing in a tax and asset protective way.

  1. Funding

If you there is no plan in place for unexpected events, the options available to fund the outgoing business partner will be limited and subject to debate. Prior planning will consider the following:

  • How will the outgoing business partners be paid
  • Effect on cash flow of the business
  • Cost of finance versus other options
  • Security required for finance
  • Cost of insurance
  • Payment of insurance premiums if required.
  1. Tax Planning

There are many tax issues to consider and frequently the clients tax advisers are not part of the discussions and left to make sense of it after the event when it is too late. Lack of awareness of tax issues can result in double taxation and a smaller estate for your family.

There have been several changes in taxation legislation recently which require all business succession plans to be reviewed including the recent federal budget.

Tax issues to consider include:

  • Ownership of insurance policies that may be used to fund an agreement;
  • Access to small business capital gains tax concessions;
  • Impact on estate planning;
  • Tax deductibility of insurance premiums; and
  • Potential tax liabilities and how these might be minimized
  1. Collaboration

Often one of your trusted advisers may address part of these issues and leave out a critical component which may have a major impact on you being a to achieve your personal and financial goals.  Business succession planning requires a collaborative approach with a facilitator who understands your business, personal and financial goals coordinating the process.

For the best results your accountant, solicitor and financial adviser need to be working in sync to maximize the outcomes for you, your business and family.

Business Succession Planning Outcomes

There is an increasing requirement to have up to date business succession plan. Having a plan for the unexpected events is an important component of an overall business succession plan.

Planning for the unexpected will enable you to:

  • Build a foundation upon which to grow your business;
  • Certainty and peace of mind for ongoing and outgoing business partners;
  • Engage in other wealth building activities;
  • Provide a platform to commence broader succession planning;
  • Review of estate planning; and
  • Review and updating of business structures.

Taking the time to update your business succession plan for unexpected events will enable you to achieve your personal and financial goals as well as your business goals.


Follow My Footprints – Geoff
Related Posts

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  3. 10 Reasons Why Estate Planning is Important 
  4. My “Why” in Life
Disclaimers & Disclosures

Geoff Ivanac is Sub-Authorised Representative No. 000309751 of GPS Wealth Ltd (GPS) ABN 17 005 482 726 Australian Financial Services Licence (No 254 544) and can provide the following services financial planning, risk management, managed investments, superannuation and retirement planning, margin lending and self-managed superannuation funds.

The information provided on this website has been provided as general advice only. We have not considered your financial circumstances, needs or objectives and you should seek the assistance of your GPS Wealth Ltd (GPS) Adviser before you make any decision regarding any products mentioned in this communication. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly neither GPS nor its related entities, employees or agents shall be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information.

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Geoff Ivanac is Sub-Authorised Representative No. 000309751 of GPS Wealth Ltd (GPS) ABN 17 005 482 726 Australian Financial Services Licence (No 254 544) and can provide financial planning, risk management, managed investments, superannuation and retirement planning, margin lending and self-managed superannuation funds.

Everblue Consulting Pty Ltd is Corporate Authorised Representative No. 000450221 (‘CAR’) of GPS Wealth Ltd. ABN 17 005 482 726, an Australian Financial Service Licence holder (No 254 544)

GPS Wealth Ltd (GPS) ABN 17 005 482 726 is the holder of an Australian Financial Services Licence (No 254 544) and an Australian Credit Licence (No. 254 544) under which GPS is authorised to carry on a financial services business which includes the provision of financial product advice, dealing in financial products and the provision of credit assistance services.