Business and Farm Succession Planning

Many family owned businesses (including farming businesses) often fail to adequately plan for that inevitable event - departure from the business of a principal (owner).

A danger period for many established wholly or substantially owner operated businesses is the time when a principal of a business departs, whether because of retirement, new horizons, illness or death. The value and even viability of a business can be reduced or eliminated if the business fails to make a successful transition to a new ownership structure. The likelihood of a successful transition increases dramatically if an agreement as to this transition can be put in place.

Issues which must be addressed include:

• Taxation and state duties.
• Funding alternatives eg risk insurance; savings or borrowings.
• Family objectives eg financial, future incomes, retirement, lifestyle, health.
• Ongoing business viability eg cash flows, staffing, expertise, etc.
• Valuation of the business.
• Agreements (between business principals, family members, staff).
• Asset Protection
• Estate Planning.

A correctly structured succession plan will involve input at 3 professional levels in order to ensure that all aspects are adequately investigated and problems solved. These include:

• Accountant skilled in Succession issues
• Lawyer
• Financial Planner

There are 19 key steps necessary in order to implment a succession plan.

1. Objectives and Goals
   Identify the objectives and goals of the principals and other stakeholders, eg. investors, key staff, family members ­ this and other preliminary issues are often covered in an initial meeting between all parties.
   
   
2. Ongoing Viability
   Assess the ongoing viability of the business in the event that a key person departs.
   
   
3. Purposes
   Ascertain the purposes for which funding may be needed eg. business equity, business debt, capital gains tax, personal debt and personal needs.
   
   
4. Funding
   Arrive at a preliminary estimate of the level of funding needed for the principals and business in the event of a crisis.
   
   
5. Measurement
   Identify the most appropriate way to measure the value of the business price at a given time.
   
   
6. Purchase Price
   Ascertain the price that the principals would currently expect to receive for their equity.
   
   
7. Tax Issues
   Ascertain the extent to which income tax, capital gains tax, company tax, GST, stamp duty and other taxes will impact if an agreement and funding is put in place and is activated by a voluntary or involuntary event.
   
   
8. Other Planning
   Issues Identify other planning issues, eg. asset protection (creditor/domestic relationship) and dispute prevention (superannuation and deceased estate challenges).
   
   
9. Types of Documentation
   Ascertain the most appropriate way to document the agreement ­ ownership of funding, taxation and asset protection issues are major factors to consider.
   
   
10. Types of Insurance Cover
    Ascertain the most appropriate type of insurance cover.
    
    
11. Ownership of Insurance Policies
    Ownership of policies will impact on the level of tax payable, access and control issues and personal estate planning options.
    
    
12. Information Gathering for Applications
    Obtain all the necessary information for the applications for insurance cover, including such support documentation as is required by insurance underwriters.
    
    
13. Effecting Cover
    Decide on which policies are the most appropriate and ensure that medicals and other requirements of the insurance companies are met.
    
    
14. Determine Administration of Agreement
    Determine as to who is to administer agreement and how the costs of premiums are to be borne, eg equally from the drawings of each principal, and who is to ensure payment of premiums.
    
    
15. Information Gathering for Agreement
    Additional information gathering for documentation, eg business structure, names, A.C.N,s addresses, policy numbers, purchase price.
    
    
16. Notations
    Record preliminary documentation of insurance ownership by way of notations or minutes of meetings.
    
    
17. Formal Documentation
    Finalise formal documentation by way of an appropriate agreement(s).
    
    
18. Estate Planning
    Attending to personal estate planning needs of principals.
    
    
19. Review
    Review arrangements on an ongoing basis.

Stubberfield Group has developed an expertise to co-ordinate the Succession Planning exercise. Mr Ian Sinnett (Succession Planning) and Mr Steven Stubberfield (Financial Planning) will co-ordinate and solve your Succession Planning issues.

We have fostered an ongoing partnership with a firm of lawyers specialising in Succession Planning to develop the legal solution.

Contact Ian Sinnett on 5482 1994 to initiate your family Business Succession Plan.

Do-it-Yourself Account Support

• Advice on which accounting software best suits,
• Train to use the appropriate accounting software,
• Provide on-going advice and training for you and your team for your accounting data,
• Review your monthly accounts to ensure they comply with tax legislation.

Contact us for a free, no obligation consultation to assist you with the setting up, running or selling of your business.

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