Succession Planning is the process of planning your exit from your business on your terms. The reasons for your exit can be many and varied, including retirement, realising the value of your investment or a change in the direction of your life. Whatever the reason or combination of reasons that apply to you, it is important to manage this process to ensure you achieve the value you deserve and the business is in the best position to thrive after you leave.
Some of the questions you need to consider when planning for the succession of your business are:
What needs to be in place to ensure a successful succession strategy?
It is widely recommended that you consider the exit strategy to your business right at the beginning when you first start/buy your business. This allows you to take control of your business and its direction from the very beginning, rather than being at the mercy of circumstance.
One of the most common reasons to plan your exit from the business when you purchase it is to allow for the appropriate business structure and ensure you have the best possible tax outcome. Depending on the type of business, the risk associated with the business and your long terms plans, a trust, company, partnership or combination of these may provide the best result tax wise. It is vital to consult with an accountant and consider the tax implications of your succession plan early to ensure you don’t miss out on any opportunities legally available to you.
Some of the more practical things that need to be considered include the lease. You need to be familiar with the lease terms to ensure you are exiting a business that is able to trade in the same location with a new owner, as the premises generally are an essential part of any business. Knowing if the new purchaser has the ability to enter into a new lease and therefore terminate your lease agreement will guarantee you’re free of any possible liability after leaving.
If there is a liquor licence or you are selling food then applications to transfer the licence from you to a new owner can take an extensive amount of time, so should be considered very early on in the selling process. Transfer approval is subject to third party agencies and there are standards and regulations for both the premises and purchaser that need to be met.
Who will the successor be?
If you are simply selling your business, then the identity and background of the purchaser may not be of great interest to you. Your main challenge will be attempting to get as many potential purchasers interested in a bid to obtain a good price.
If you have a family business however, there are more issues to consider. For instance, do you have a likely successor within your family? If so, is the successor in a position to purchase the business outright, or do you need to contemplate a purchase over a longer period of time? Will this be considered in your will and if so, could there be a challenge or will some family members feel left out?
What are the first steps?
When planning your succession strategy, you should contact your accountant, legal advisor and financial planner in the first instance. With their guidance you will be able to formulate a plan that puts you in the driver’s seat rather than leaving you at the mercy of the market at the time you need to exit the business most.
The information provided in this article is of a general nature only and is not intended as specific legal advice. If you have a specific legal issue relating to the topics covered by this article we suggest that you seek legal advice.