By Barry van Heerden
A recent study of 570 family businesses has revealed only 30% of businesses had any formal business succession or exit strategies in place. 
In this 4 part series we will attempt to highlight the importance of Business Succession and to provide some practical guidelines on how to implement a successful business succession plan in your business.
Planning for the unexpected is a valuable instrument in any business. Not only does it provide comfort and peace of mind to all partners in the business but it also creates security for the business financiers.
We find that more often than not financiers will insist on a Business Succession Plan before providing any funds to a business. By having a Business Succession Plan in place, it may provide comfort to the financier and make any finance application easier.
We live in a real world and not a perfect world and therefore if any business owner ignores the opportunity to plan for the succession of its business such business owner leaves the business susceptible to self-destruction. This has on numerous occasions been referred to as “business euthanasia”.
It is important to know what is a Business Succession Plan and how will such a plan be to the benefit of the business.
In summary, a Business Succession Plan is in effect a financial and tax plan that:-
- Gives the business every chance of survival if any of the partners dies, suffers a permanent disability or trauma (referred to as an “event”).
- It ensures the true value of the interest of such a partner in the business is received by its family members;
- It allows for transition of ownership without the additional financial obligation to compensate the relevant partner or its estate for its share in the business;
- It provides comfort to all parties involved (including staff) and the financier of the business;
- It structures the affairs of the business to reduce unnecessary capital gains tax, income tax and stamp duty for the remaining partners and the relatives of the partner that suffered an event.
The most important benefit of a Business Succession Plan is to provide certainty for everybody involved. A verbal plan is not enough. One of the partners to such a “verbal plan” will not be around to confirm what was discussed and this opens a field mine for lawyers to litigate until such time that there is no value left in the business.
The first requirement is therefore that a Business Succession Plan should be in writing signed by all parties and their closest relatives. A personal Will is not enough, a business Will is required to allow for the successful succession of your business.
In our next article we will discuss the content of a Business Succession Plan.
Should you wish to discuss the succession of your business and the effect they may have not only on the other partners but also your relatives, please contact our Property & Commercial Department manager Jess Kimpton on 07 5506 8214 or email firstname.lastname@example.org for an appointment.
We conduct regularly seminars on business succession and specifically Buy/Sell Agreements to accountants, business advisors and their clients. If you feel you or your staff/clients may benefit from such a presentation please contact us to arrange.