March 25, 2022
Passing the family business to the next generation?
When it comes to running a family business, one of the biggest questions that will arise is when and how to pass it on to the next generation. While the specific details of your family business may be different from others, there are some key questions you should ask yourself before beginning the succession process, including how involved you want to be with the company after retirement and how much money you want your children or grandchildren to inherit from you. As long as you approach this topic with an open mind and keep your family’s best interests in mind, passing your business on can lead to happy, successful generations ahead!
If you decide to hand over your family business to a loved one, you might have to deal with a variety of unforeseen tax obligations, such as Capital Gains Tax (CGT), wine equalisation tax, fuel tax credits, and excise duty. To prepare the business for succession, consider contacting the ATO or Accountant to determine if you are eligible for tax benefits. Note any business restructuring operations and the tax implications in the succession plan.
Consider a family trust
For a young family member who will be taking ownership of the family business, it is often suggested that they take over managerial duties first to prove themselves before they take full control. If you would rather give up control slowly instead of giving it up permanently, transferring ownership to a family trust is an option.
This can be tricky and may incur additional costs, but as a trustee, you will be able to remotely manage the assets and intervene in case something arises early on. Family trusts also carry increased tax benefits that can be taken advantage of.
For those looking to go into a less intense type of work and only want to be semi-involved with the process, this can be a great solution.
Create a family constitution
To make the hand-off occur as smoothly as possible a family constitution should be drawn up collaboratively by all, directly and indirectly, involved in the business. The following should be included:
- ● A detailed business plan, stipulating goals, outcomes
- ● Hierarchy of the business, both present and future
- ● Will of the business
- ● Code of conduct for interactions between family members in business
Develop a succession plan to successfully succeed
Creating a succession plan assists you in transferring your business to your successor. To do so, it should include the following in order to successfully move on.
- Choose a successor
Decide whom you would like to take over your business and be sure they are skilled and ready for the challenges ahead. Remember to figure out what is best for the business before making any decisions.
- Value your business
Learn how much your business is worth by getting your business valued on a regular basis. This way, you’ll be able to calculate your net worth during events, on a day-to-day basis, and in general. Although this estimate could change drastically before you leave, it will at least help you with long-term financial planning.
- Keep the plan current
Go over your succession plan periodically, as your circumstances and the business’s circumstances might change. Doing so will ensure that you’re always prepared for your decision to transfer the business onto a successor at a time when you originally didn’t intend to.
- Make the final handover
With all final preparations set, and after you’re ready to retire, the best thing to do is give the business over to your successors and take a step back. With a clear and up-to-date succession plan, the transition should be easier, without any disruption to the company’s everyday work.
- Be present during the final handover
You should be present during your business’s final handover. While you don’t need to be as hands-on as in previous years, you should still be ready and willing to guide and assist with any issues that may arise. This presence will ensure that everything runs smoothly until your successor is fully up-to-speed on their new role.
If you’re looking for expert help with your business plan, contact us today. We can assist you with every step of the process, from developing a strategy to assisting with the handover.