Passing The Business To Family? Here Are Three Things You Probably Hadn’t Considered
Succession planning for the family businesses has a number of factors that could impact the decision to pass the business onto the next generation. Namely, you’ll be looking for someone in the family who is willing to assume the responsibility.
But if you intend to pass your business down the family tree there are a number of taxation, financial and managerial considerations that need to be taken into account for a successful succession.
Taxation Implications
When transferring your family business and placing it in the name of another family member you may trigger a myriad of taxable consequences, including Capital Gains Tax (CGT), wine equalisation tax, fuel tax credits and excise duty. You need to consider, when preparing the business for succession include:
• Consulting the ATO to check if you are eligible for tax concessions
• Document all business restructuring operations and the tax impact in the succession plan
Consider A Family Trust
It is often suggested before a younger family member gains ownership of the business they should first assume managing responsibilities to prove themselves. If you want to relinquish control gradually rather than permanently, re-structuring the business as a family trust is an option.
Although this may be complicated and incur costs, as a trustee you will be able to have control of the assets from a distance and be able to step in should the need arise in the early phases of new leadership. Family trusts also carry increased tax benefits and concessions that can be taken advantage of.
This is a great solution for those looking to go into semi-retirement or looking to step back from the business but still want some involvement with the process.
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
A succession plan is designed to assist you in transferring your business to a successor. To do so, it should include the following to further guide the process.
1. Choose A Successor
Identify who you would like to take over your business. If you wish to keep it in the family, you need to be certain that the person who will be taking over is skilled and prepared for the responsibilities to come. Make sure that you consider what is the best path for the business.
2. Value Your Business
Understand how much your business is currently worth by getting your business valued. By doing so consistently, you can mark out how much your business is worth during events, the general day-to-day and more. This valuation may change substantially before you plan to leave, but having a valuation may assist you with planning for your succession.
3. Keep The Plan Current
Review your plan regularly, as your circumstances and the business’s circumstances may change over time. Having an up-to-date succession plan will ensure you’re always ready in the event that you need to pass the business on earlier than expected.
4. Make The Final Handover
If the final preparations have been properly made, and you’re ready to go, you should simply be able to hand over the business and step aside. A clear and current succession plan should facilitate a smoother transition with far less chance of disruption to the business’s everyday operations.
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