Everyone has heard the term ‘business succession’ for a while now but what does it really mean?
On a practical level, succession refers to transition. Naturally, transition means different things to different people, especially when dealing with families in business.
Typically transition occurs in two contexts; ownership and control. Preparing your business and your family for transition requires a sound strategy, thorough preparation and open communication.
When planning to transition your business, you can be faced with numerous commercial issues including:
Do I want to exit my business altogether (sell the business) or only step back from working in the business?
Do I want to relinquish part or all or only part of the equity in the business?
Can the business operate without me?
Does my business have systems, processes and people required to function without my daily operational input?
Can I confidently pass on the day to day operation and management to another person?
Could that person be a family member or an existing trusted employee?
How can I incentivise that person to stay in the business and drive its continued success without me?
Ensuring you have a business structure conducive to transition before you embark down the path of putting any plan into action is vitally important. Equally as important is that you have the right documentation in place to enable you to transition smoothly and tax effectively. Ideally, your legal and tax/ accounting advisers should work collaboratively to produce a strategic road map to assist you achieve the best possible commercial outcome for the transition of your business.
Where family is or is likely to become involved in the business, a whole other range of personal and interpersonal issues need to be considered:
What is my vision for my family and the business and has this been communicated to my family?
Does my vision for the business fit with my family’s expectations?
What criteria do family members need to meet before they can assume any control and/or ownership of the business?
How can I / my family retain control of and protect the business assets and direction of the business in the future?
Legal advice should
be provided in the broader context of the above issues. You
should seek advice about how business and family assets are held
(whether in personal names, trusts or other structures), whether
existing structures and relevant trust deeds need to be amended (if
viable to do so) and what documentation needs to be put in place to
ensure the family can retain control of, protect and preserve the
business assets, irrespective of whether members of the family work
in the business or not. Obtaining advice from your adviser in
this context will ensure that the family issues pertaining to the
business are aligned with your commercial
objectives.
Embarking on the process of transitioning control and/or ownership of a family business is an opportunity to have open and robust discussions with your family about your financial and personal goals and needs and your family’s expectations in relation to the future of the family business and their role in it and any legacy you wish to leave to future generations.