Succession Planning for your Business

Succession planning helps you avoid those ‘worst case’ scenarios. 

In business, careful planning helps to avoid potential pitfalls. However, one of the key risks frequently overlooked is when the business relationship between the owners comes to an end.

The end of a business partnership could be a voluntary departure through retirement, disagreement or involuntary departure such as death or total and permanent disability. Succession Planning helps you avoid worst-case scenarios in the event of one partner’s demise or disability. It also ensures the viability of the business by providing certainty for the future control of the business and protecting its cashflow.

The key is to identify the possibilities and plan for the outcome. Putting legal agreements and funding in place BEFORE they are needed is simply good planning to protect what is often a very large investment of your time, family wealth and income.

How the succession planning legal agreement works. 

In most cases the agreement (called a ‘Buy/Sell’ agreement) comes into effect when a specific event occurs, for example, death, total & permanent disability, or critical illness to one of the business partners. This event can then trigger the transfer of their share of the business to the surviving partner/s.

A Case Study: Tragedy Strikes 

One day in 2007 Sarah collapses in the office. An ambulance is called, but the paramedics can’t revive her. The cause of death is later established as a brain aneurism.

Helen is deeply affected by Sarah’s death, initially closing the business. After her initial grief subsides Helen decides to go back to work. On the day of the office reopening Helen is reasonably upbeat until she meets her new business partner – Sarah’s husband James. As the sole beneficiary of Sarah’s will, James has inherited all her assets, including the 50 per cent shareholding in the graphic design company.
 

Over the next month, James makes Helen’s life very difficult. He insists on being involved with all business decisions, even though he has limited business acumen and no understanding of graphic design. Furthermore, one of Helen’s staff members is becoming increasingly uncomfortable around James and wants to resign.

This scenario could have been avoided if they had established a business succession agreement (buy/sell agreement) prior to Sarah’s death.

Read more Case Studies here. <link: Case Studies page>

Want to know more about Succession Planning for your Business? Call us on (03) 9890 3388 to book an obligation-free appointment, or get a free online quote now.

The information contained in this outline is of a general nature only. It has been prepared without taking into account any individual's objectives, financial situation or needs. Before acting on this information, you should consider the appropriateness having regard to your own objectives, financial situation and needs.