Are you more worried about the day-to-day of your business than you are about the hazy, unformed vision of ‘after?’
While it’s common for business owners to pour their heart and soul into making their business succeed, it’s also very common for business owners to leave their estate planning to the very last minute. This can cause serious financial and emotional hardship for family members who are forced to untangle an often complicated web of your estate.
Not having a succession strategy in place is risky at the best of times. However, with the underlying threat of COVID-19 compromising our economy and our health, it’s become very apparent that business owners need to get their estate and business succession plan in order.
The Importance of Estate Planning and Succession Strategy
So, how do you prepare for the unexpected?
Most would turn to wills. We’ve seen many people scramble to do this during this pandemic outbreak.
Yet legal wills, unfortunately, do not guarantee that business assets are transferred in a tax-effective way. They can overlook important considerations when it comes to your asset protection strategy. In some worst-case scenarios, it can leave your beneficiaries in a lurch.
Instead, your succession strategy needs to revolve around three key things. This ensures your family business will be one of the 30% to survive into the second generation.
Mitigation of Risk
Modern family businesses tend to have most of the family wealth invested in the business. This is often a single business structure which opens it up to enormous financial risk if the main operator was to fall ill or pass away without a proper plan in place.
Currently, 9 out of 10 business owners don’t have a succession plan in place. So, to mitigate as much of the unknown as possible, it’s important to consider whether you need:
- A business Power of Attorney, especially if you or a partner are both directors
- Shareholder, partnership or unit holder, agreements
- A Joint Venture or Buy-Sell agreement that specifically addresses removal because of trauma, disablement, prolonged incapacity, or death. Make sure your business valuation is current when this is drafted
The above are a few things to consider when you create your succession strategy. However, you won’t be able to get the horse out of the gate without first laying a strong foundation. Have you spoken to your family about who you plan to have take over? Not only does this give you enough time to groom and train your successor, but it also gives you the opportunity to be open and transparent with your family and lay the groundwork for a successful legacy that will long outlive you.
Planning for the long term requires the blessing of all those involved. Speak to your family sooner rather than later about estate planning so that everyone is on the same page if something unexpected does occur.
Many business owners don’t see themselves retiring for 5, 10, or 20 years. But what happens when that time comes near? Either naturally or because of an extenuating circumstance. Then what?
Do you know what you want to do after you exit your business?
If you’re unsure, we recommend taking a few introspective moments to map out how you see your retirement going. A lack of a strategic plan will affect your business from the top down and can leave your family members at a loss on how to interpret how you would have liked the business to go on if you were to ever be suddenly removed.
Remember, communication is key. Have clarity on your motivations for exiting the business - even if you believe your retirement is still far off.
What's Next For Your Estate Planning And Succession Strategy?
Most Australian business owners postpone thinking about the future of their business when they’re still at the helm, but having the right succession structures in place will provide the safeguards you need to know your business is protected far into the future.
If you need help getting your estate in order, or are having a hard time navigating the often complicated narrative of a family business, speak to an adviser. They will be able to ask the right questions in order to set you on the right path with your succession strategy.
Start with a Review of your Essential Personal Legal Documents
A great place to start is by having a review of your Essential Legal Documents.
Essential Legal Documents need to be in place, to ensure certainty for all immediate family members, in the event illness was to occur. This is a good time to check in with your parents to ensure their legal documents are also current & up-to-date.
‘Essential Legal Documents’ include:
- Basic Will
- Power of Attorney (POA)
- Guardianships for yourself & Spouse / Partner
- Guardianships to legally care for your child/ren (if applicable)
- Asset Protection Strategy (if you are a business owner)
If you are interested, please reach out. Exit Advisory Group has trusted partners in this area and we can direct you to the right professional specialists.