Successful Succession Planning

Taking on the ownership of a family business can be a rewarding yet challenging journey. At Munro’s, we understand the importance of ensuring that this transition is smooth and secure for both the current and incoming owners.

We first suggest you approach the process as if you were selling the business to an unrelated party. This perspective helps to objectively evaluate the business’s health and potential risks.

Start with a due diligence and financial health check. Assess the risks you’re inheriting. Is the business making adequate profits for its risk profile? Is it trending in the right direction? What does the cash flow look like? And importantly, what is the business worth?

Once you have these answers, turn your focus to the unique aspects of a family succession. Determine a fair price for the business. Consider how it will be funded – will it be through loans or gifts? Clarify payback expectations. Legal documentation is crucial to protect everyone’s interests.

As the incoming owner, setting up for tax success is essential. This includes selecting the best entity structure and completing the succession transaction in a way that mitigates taxes, including GST and transfer duty. Think ahead to how you can access CGT concessions in the future when you inevitably exit the business.

Protecting your existing and future wealth is another priority. Deploy basic asset protection strategies and consider advanced tactics for comprehensive security.

Successful succession planning also involves managing business reputation and relationships. This includes relationships with employees, vendors and family members.

You may also need to upskill for business ownership. Do you understand your legal obligations? How do the best business owners and managers operate today?

A well-crafted succession plan gives incoming owners confidence that their interests are protected and the business is set up to survive and thrive.

We’re here to assist you. Start with a free Get To Know Each Other meeting. You might also want to complete our spam-free Succession Planning Diagnostic accessible on our website.

We look forward to helping you.

Some business owners may not realise this, but there can be severe tax and duty consequences upon transferring your business to the next generation.

Some of these tax consequences may involve:

• Capital Gains Tax;
• Transfer Duty (also known as Stamp Duty); and
• GST.

The good news is, if you adequately plan ahead, you and the next generation shouldn’t get a rude shock from an undesirable tax or duty bill, and you may in fact be able to substantially reduce them too.

I’ll share some brief examples of successful succession planning to explain further.

The first example involves a long-running family business with a uniquely historical company structure.

This family plans to sell some valuable assets and naturally want to reduce taxes as much as legally possible. As their advisor, we identify the small business CGT concessions as a potential way to significantly reduce taxes. However, there’s a problem, related to the historical company structure.

Thankfully, both the client and we have been proactive, and the sale is not imminent. We are able to implement changes several years before the sale.

This forward planning and execution allow the family to become eligible for the small business CGT concessions years down the track. It is a fantastic outcome for them with substantial tax savings.

This second example involves a family farm.

As is common in farming families, when the children have been working on the farm for several years, at some stage they want to have some assets in their name.

The parents are happy to transfer part of their farmlands to their children while they are alive. The parents tell us about their intentions, which allows us to consider the potential tax implications and begin to explore potential tax saving opportunities.

In this example, the family farm is in a unique business situation. Unlike most years, where revenue exceeds $2million and disqualifies them from the small business CGT concessions, the projected revenue for the current year is below the $2million threshold. This means that if they act promptly they should be able to access the very favourable tax concessions.

In reality, it wouldn’t be as simple as this. Rather, we’d have to, amongst other things, look closely into the legislative definition of “aggregated turnover” to confirm eligibility.

Thankfully, in this example, we are very pleased to inform the parents that they are in a rare position to access the Small Business CGT Concessions and save substantial amounts of tax.

Further, we also carefully analyse the situation with respect to both Transfer Duty and GST. Consequently, we help them structure the transfer in such a way that they are free from both Transfer Duty and GST.

If you are considering passing on your business to the next generation, please take the required time to forward plan.

Ideally, do this a couple or more years before succession in order to allow sufficient time to implement what may be necessary to legally minimise your taxes. We’re here to help if you need us.