Key points
- Start succession planning early to allow time for the next generation to gain experience and ensure a smooth transition.
- Clearly define roles, ownership structure, and your ongoing involvement to avoid emotional and financial complications.
- Estate planning is essential to protect assets, provide for all beneficiaries, and ensure fair distribution of wealth
When passing on a family business to family members you need a plan and be able to separate what’s family, and what’s business.
Selling or stepping down from a business that you have built or grown can be difficult and emotional. You have poured blood, sweat and tears into the business so it can be hard to let go. Passing on a business to other family members, such as your children, has issues that don’t occur in other business transitions.
As someone who is part of a third-generation family business, as well as an Accredited Adviser of the Family Business Network, I know first-hand the issues and dynamics that come into play.
Have a family business succession plan
The best time to start succession planning for any business, especially a family business, is years before you want to pass the business on. This helps in case of sudden illness or inability to continue in the business. It also allows time for the next generation to gain the skills and experience to successfully continue, change and grow the business.
It can be difficult when you are immersed in running the business, but having help putting a Plan in place ensures a more seamless and beneficial transition for you, those taking over as well as the business and its customers or clients. It gives you time to make decisions deliberately and logically rather than emotionally.
A good plan sets out:
- who is going to take over the business and their roles
- your ongoing role in the business, if any
- estate planning measures to be considered for your beneficiaries
- measures to ensure your financial independence from the business.
Ownership and ongoing involvement
You need to decide on your involvement in the business as you start to step down. One option is to be paid out of the business, but family members may not be able to do that immediately. The type of business, and how it’s structured(sole trader, a company or a trust), will impact your options, tax consequences, your level of control and the options for receiving future income.
Estate planning
Estate planning is critical for all business owners. It can be a tax effective strategy can and provide asset protection when transitioning the business, however your whole estate and beneficiaries should be considered.
In family business transfers, estate planning can provide for family members and other beneficiaries who are not involved in the business transfer. Getting the business valued is an important starting point to make decisions transparently and equitably.
There may be other assets in your estate that go to those family members not involved in the family business. Additional funding may be needed which could include life insurance.
A testamentary trust is an option to assist in protecting assets from going to the spouses or ex spouses of your children in the future if you don’t want them to receive part of your estate.
Control and financial independence
It is common for owners of family businesses to have all their wealth tied up in that business. They often neglect payments into Superannuation. You need to separate your business and family from your own personal wealth to ensure you are financially independent and can achieve your goals after you leave the business.
This is one reason why it is important to start succession planning early and get help from a financial adviser or business adviser. You’ll want to hand over the business in the most tax effective way for all parties.
Help with family business succession planning
As you can see, there are many issues to think about when handing over or selling your business to family members. An experienced business and wealth adviser knows all the issues and options to consider. They can hold your hand, ask you the right questions and help you have the difficult conversations with family members. Someone who can help you take the emotion and family dynamics out of the transfer.
Got a question about succession planning for your family business?
Pitcher Partners Newcastle and Hunter has a team of tax advisers and accountants, business succession specialists and wealth managers each with decades of experience in their field.
We work together to support family business owners to successfully run and then hand over their business to the next generation.
We love questions. If you want to know more about Pitcher Partners Newcastle and Hunter’s family business advisory and succession planning services, please contact us.
Lydia Blakemore CFP is a Partner and Private Client Adviser at Pitcher Partners Newcastle and Hunter and a Certified Financial Planner. She is an Accredited Adviser with the Family Business Association. Lydia works with clients, including multi-generational business families, to achieve their personal and business goals.
