Why does every small business need a succession plan?

As a small business owner, your days are filled with decision-making, strategising, managing, supervising, finances, customers and so much more. You live and breathe your business.

However, all-consuming your business is, though, it’s important to keep an eye on the big picture. After all, you don’t want all your efforts to be wasted or lost in the long run. You want to build something that’s valuable, protect it, and give it every opportunity to grow and prosper into the future.

That’s why you need a business succession plan.

Do I really need a business succession plan?

No matter the size of your business, a business succession plan is always worthwhile.

Having a succession plan means you can:

  • smoothly exit the business and retire comfortably;
  • maximise the value of your business (both for you, if you decide to sell, or for future generations);
  • optimise your tax, CGT and stamp duty position;
  • protect yourself from potential claims from disgruntled beneficiaries;
  • make sure clients and customers aren’t left in the lurch in the event of an unexpected event;
  • ensure the ongoing success and reputation of the business you’ve worked so hard to create.

Although it may seem like a far-off event or something that won’t happen, there will come a day when you exit your business – whether you decide to sell, are forced to sell, head off into retirement or if there is an unexpected illness or death.

What is a business succession plan?

The overall goal of a business succession plan is to preserve your business into the future along with the wealth created by your business so it can be passed on to future generations.

A succession plan should cover:

  • Your goals: what are your priorities in making the plan?
  • Your successor: who will take over the business in certain situations?
  • Preparing for transition: how will you train people to take over when you leave the helm?
  • Business structure: is this optimised to easily transfer wealth without incurring heavy taxes?
  • Financial issues: what is the market value of the business and how can the value of your assets be protected?
  • Legal considerations: what are the legal and regulatory requirements relating to ownership of the business?

What’s next?

There’s no one-size-fits-all approach when it comes to succession planning, so professional help in preparing and executing your plan can be crucial. You may, for example, need to prepare or update these legal documents:

  • Trust deeds
  • Company constitutions
  • Shareholder, unitholder and partnership agreements
  • Family agreements or family constitutions
  • Letters of wishes
  • Buy/sell agreements
  • Binding death benefit nominations (BDBN)
  • Financial enduring power of attorney (EPA) to be used to company affairs
  • Personal EPA
  • Wills.

Whether you are nearing retirement or at the start of your entrepreneurial journey, having a business succession plan can protect your lifestyle, give your family security and give you peace of mind.

If you need any assistance contact one of our lawyers at info@legallysmart.com.au or call 02 8332 6126 for a no-obligation discussion and for a specific legal advice.

Disclaimer: This article is for information purposes only, and it is not intended to be a legal advice.