Succession planning is more than just a task on the to-do list for family business owners and farmers. It ensures the future sustainability and prosperity of the business, however, navigating this can come with its own set of challenges, especially when balancing family dynamics, tax considerations, and the equitable distribution of assets.

For many small businesses and farms, where the founder's role often forms the backbone of operations, transitioning ownership to the next generation can be a daunting process. What once worked seamlessly for one generation may not necessarily fit the evolving needs and aspirations of the next generation.

It’s essential to assess the current structure of the family business. This evaluation lays the groundwork for understanding what adjustments may be needed to ensure a smooth transition. However, each family business is unique, and there's no one-size-fits-all approach.

Key steps in the succession planning journey include determining the business's value, crafting a tailored succession plan aligned with the owner's objectives, and establishing a clear timeline for the transition. This process often involves collaboration with legal and financial professionals who can provide valuable guidance and expertise.

Key Discussion Points Can Help

When working with our clients on succession planning, we often find that certain discussion points are really helpful in bringing clarity to the process:

·        Retirement Planning: How can the current owners retire from the business while ensuring a sustainable retirement income without burdening the business financially?

·        Equity and Fairness: How can it be fair on the children outside of the business, ensuring fairness for all?

·        Asset Diversification: How can they build assets outside of the business for retirement or estate planning purposes?

·        Business Continuity: How can the business be safeguarded with the involvement of remaining family members, ensuring its longevity and success?

By addressing these key discussion points, we can help our clients to navigate the complexities of succession planning, and together with their lawyer and accountant, ensure a successful transition to the next generation.

Consider the Following Scenario

Parents wish to retire from their farm, leaving it in the hands of their son and daughter-in-law. They dream of travelling around Australia with a new Landcruiser and caravan.

As their financial adviser, in this situation, we;

1.        Collaborated closely with the business's accountant, reviewing their cash flow budget to ensure that the intended purchases can be comfortably afforded without straining the business's finances.

2.        Recognizing the importance of safeguarding the family's financial future, we've put in place personalised insurances within super for both the son and daughter-in-law. This ensures that if anything happens to either of them, they'll have access to tax-free funds, providing them with financial security during challenging times.

3.        We've taken steps to protect the business itself by putting in place insurance coverage paid for by the business. This ensures that in the event of any unforeseen circumstances affecting the working business partners, the business remains financially secure, and operations can continue.

4.        We do have some clients who continue to pay insurance premiums, to provide financial protection for the children outside of the business and to alleviate the burden on the business by negating the need for a lump sum payout.

5.        As the younger generation takes on more management responsibilities, we've adapted insurance coverage accordingly. By reducing or cancelling insurance cover for the older generation (the parents) as their responsibilities diminish and their insurance premiums increase, we've effectively improved the cash flow of the business.

6.        We've emphasized to our clients, the importance of diversifying assets outside of the business. By doing so, we've created a financial cushion to support both the children outside of the business and to facilitate a comfortable retirement for the parents.

Don’t leave it until it’s too late. We encourage family business owners to start planning early and involve family members from the beginning. Keeping open lines of communication and documenting plans can help prevent misunderstandings and ensure everyone is on the same page.

A comprehensive succession plan will help to balance the interests of all family members and establish clear roles and responsibilities, while preserving family harmony and wealth.

If you would like more information, you may like to book a free discovery call with Thelma from our Albany office, or Harrison from our Perth office.

The information contained in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.

If you or someone you know are experiencing financial hardship or need support to get on track financially, please reach out to Anglicare who can provide free financial counselling.