Introduction
A survey conducted by Family Business Australia, KPMG and the University of Adelaide's Family Business Education and Research Group in 2013 revealed that of the 570 family businesses which participated, only one third had formal succession or exit strategies in place.
What happens if the unexpected occurs?
What would happen if the driver of your business dies or becomes incapacitated or there is a need or opportunity to sell the business?
The vast majority of Australian businesses are conducted under one of the following structures:
- Sole trader;
- Private company;
- Family / discretionary Trust; or
- Combination of the above, for example, partnership.
The choice of structure is driven largely by taxation considerations, but with an eye on asset protection and operational practicality as well. Another relevant consideration but one which is often overlooked is the matter of transition to new ownership whether that is within the family, to management or to a third party.
Failing to plan
There is a saying that "failing to plan is planning to fail." Failure to hold the business in the most appropriate structure and not having a suitable business succession/exit plan in place can have serious consequences.
Consider a major disruption to your business such as the death or disability of a key family driver or a marital breakdown of a family member involved in the business. Or consider the opportunity created by an unexpected offer to purchase your business. Is your business ready for these types of events or is the only succession/exit planning strategy your business has in place your last Will and Testament?
Too often we find (as confirmed in the 2013 survey) that owners of family businesses have not addressed these questions, resulting in disputes and loss of value opportunities.
Is a Will enough?
No. A Will (although an important and valuable starting point) only deals with property in your own name. Most of the matters which must be addressed to successfully transition control and ownership of your business will fall outside your Will.
Conclusion
If that unexpected event or opportunity has not yet arrived, you should seek advice now and start to put suitable arrangements and strategies into place. By all means begin with your Will, but the process doesn't end there. You must make a plan with your adviser. Failing to plan is planning to fail.
This article is the first of a three part series. The second article will address the issue of transition and succession in a business and the third article will address the legal aspects of readying your business for sale (or operating it better now).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
