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Be successful at business succession

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Business succession is not just about considering how to exit your business but the circumstances under which you may do so.  Death, bankruptcy, illness, partnership or shareholder disputes could be the reason for an early exit however so too could an early retirement.

A business exit and succession plan is a vital part of business management.  Owners should be conscious of preparing their business for sale – undertaking a ‘defensive due diligence’ whether or not a sale or business exit is contemplated in the short term.

It is common that potential purchasers are prepared to pay a premium for businesses that have documented systems, policies and procedures, registered intellectual property and where there is no need to substantially upgrade equipment, IT systems and infrastructure.  Purchasers will also pay more or, conversely, are less likely to seek discounts on the valuation or purchase price of the business, where owners and employees are formally engaged with the business by way of employment agreements.

It is imperative that suitable company structures, documentation and registers, partnership and shareholder agreements, buy/ sell agreements and trust documents are put in place to not only add value to your business but to ensure you can exit your business in a tax effective manner and to protect you in the event of an unplanned exit from your business.

Interpersonal and emotional issues are often integral issues that are overlooked by businesses when addressing succession.  An effective business succession plan cannot be established and implemented without regard to these issues, particularly in relation to families in business or family businesses.

Technically brilliant succession plans are of no use if personal issues are not properly addressed.  This highlights the need for business succession to be coordinated with estate planning and other specialist advice where necessary to ensure positve outcomes are ultimately achieved.

It is common to find that business and personal documentation is insufficient to implement succession goals.  Often agreements do not specifically address business exit issues or only do so in a simplistic manner.  Trust deeds may not provide for the passing of control of the trust to the right person, Wills do not reflect business succession plans (a spouse or executor may inadvertently be able to control or have (unwanted) input into the operation of the business).  There is also often an absence of documentation dealing with the funding of an owner’s exit from the business, leaving their business partners struggling to afford to be able to pay for their interest in the business.

Some succession tips:

  • Surround yourself with a team proactive advisers who will work collaboratively to assist you in achieving your goals
  • Meet regularly with your advisers to review your current legal and financial position and demand proactive advice
  • Identify your succession goals; are your objectives to protect your wealth, provide continuity and ongoing success of the business, provide for future generations or a combination of each?
  • Coordinate business succession planning and estate planning to achieve your succession goals
  • Review and update your succession goals.  If your plans change, your documentation may need to be updated.

Author: Fotini Kypraios

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