Business Succession planning critical

At its simplest, business succession is the act of a business (or a share in it) transferring from one owner to another.

This succession can take place during one’s lifetime – or it can be forced, following the death of an owner, or part-owner. During the reign of an owner, the succession could be from themselves to family members, to an ‘entity’ controlled by them (and/ or members of the family), to a coalition of owners (that could include family members); or out of the family’s ownership and control altogether.

Is a partnership with your business partner’s spouse and children in your best interest?

There are a number of important considerations when individuals ‘go into business together’ whether in their own names or in the names of entities (such as Trusts, Companies etc) – and not the least of these is a Business Succession strategy. It is not uncommon for people who are in business with partners other than their immediate family members to seek financial advice. A question that they often struggle with, is regarding the future of their family let alone the business, should they or one of the business partners meet an untimely demise or impairment to their ability to function.

Consider the circumstances of the following Case Study and relate it to your own business structure(s): whilst you business partner and his life partner may be good ‘friends’, they may not make the best of business partners (their skills, business/ financial objectives could change after the event; their attitude could change after the influence of your here t before partner’s ‘demise’; or, you might think of them and react to them. differently in the changed circumstances).

Case Study: a professional practice

Consider the situation where a professional partnership comprises a partner in his late-50s and a partner in his mid-30s. In this situation, the older partner is eyeing off retirement, whilst the younger partner who is generating a higher level of fees because of the circumstances of his personal and community involvements is eyeing off a larger share of the profits/ partner salary. There is a disconnect between the perceived value of the respective shares in the partnership arrangement – and in the absence of a well-considered Buy-Sell Agreement appropriately funded, a family disaster is waiting to happen should either of these people suffer a death or disablement event.

The business under consideration in this case also carries some commercial debt in respect of business operating costs and equipment finance, all of which is personally guaranteed by the individuals (and in the event, their respective spouses).

In the event of the demise or permanent disablement of one of the partners, the personal business/ life goals of the survivor could be in jeopardy. With a well-documented business succession plan, accompanied by realistic statements as to how such events should be dealt with, the financial risks to the business will be substantially reduced.

The cost to effect the relevant Business Succession agreement(s) and, where appropriate, the accompanying risk protection insurances, would be a relatively small investment compared to the potential legal costs that will inevitably be incurred by the parties should the disaster arise.

What does the formulation of a business succession plan entail?

It is a process whereby arrangements are pre-agreed for detailed, foreseen circumstances: the plan will usually require documenting a partnership agreement (or, if more appropriate, a shareholder agreement), a buy-sell agreement – and, most importantly, funding arrangements for the smooth and transparent transfer of the equitable interests of the exiting partner to the continuing partner(s).

In reviewing these agreements, it is evident that considerable discussion is required, together with a substantial level of goodwill, to ensure that what is agreed will stand the test of time (at least through until the agreements are revised).

Where can you obtain business succession planning advice and support?

For an investment that has an annual cost less than the amount of the superannuation guarantee contribution being made for the average Australian worker, most families and/ or small businesses could be well protected against the risks to which our featured client in the Case Study above, is exposed.

At the least, involvement of an experienced financial planner, an accountant/ business adviser – and a lawyer will be required to undertake effective business succession planning; and the advisers at Continuum Financial Planners Pty Ltd are at the one time, experienced in advising in this field – and connected to professional advisers in the accounting and legal fields who can contribute to the construction of the most appropriate plan for your circumstances.

Similar cases to those mentioned in the Case Study above can be identified for trading and investment businesses operated and/ or controlled by parties from more than one family unit: and the situations that can be protected in this way are not gender specific. The anxieties are no less for businesses dealing in more ‘material’ elements than professional services.

Arranging a business succession planning meeting-

Continuum Financial Planners Pty Ltd has experienced advisers available to assist with your business succession planning, ensuring it is suited to your individual and specific needs: ‘we listen, we understand; and we have solutions’. To arrange a meeting to facilitate personalised, professional wealth management advice on this topic, phone our office on 07-3421 3456, or use our website Contact us facility for an obligation-free appointment to discuss business succession planning (to ensure that your business partner(s) – and your family – have the peace of mind that goes with sound financial planning and a stable business environment).

(This article was originally posted in June 2012; it has been refreshed occasionally, most recently in April 2021.)