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Successful Succession Planning
Step 1A: Protect the Business & Incoming Owners
✔ Setup for Success
✔ Existing Wealth Protected
The incoming owners need to be coming into a situation where they can survive, and then thrive. They also need to be protected in case something goes wrong.
Read Key Points & Transcript
Protect the Business & Incoming Owners During Family Business Succession in Australia
video key points
- Transitioning into family business ownership requires a thorough evaluation, akin to selling the business to a third party, to objectively assess its health and risks.
- Conduct a detailed due diligence and financial health check, focusing on profitability, cash flow and overall business valuation to understand inherited risks.
- Address unique family succession issues by determining a fair business price, planning funding methods and ensuring legal documentation is in place to safeguard interests.
- Plan for tax efficiency by selecting the optimal entity structure and managing succession to minimise taxes, including GST and transfer duty, while considering future capital gains tax concessions.
- Protect your wealth with fundamental and advanced asset protection strategies.
- For personalised guidance, start with a free introductory meeting and explore the spam-free Succession Planning Diagnostic available on our website.
Presented by: Carl Hansen
video transcript
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.
Step 1B: Protect the Retiring Owners
✔ Security During Retirement
✔ Confidence in Long-term Business Success
The retiring owners will want to pass the business over with confidence in its long-term continuation, whilst also ensuring they have a financially healthy future that is setup in a tax effective manner.
Read Key Points & Transcript
Protect the Retiring Owners During Family Business Succession in Australia
video key points
- Selling a business, especially to family members, requires ensuring its long-term success and your financial stability for retirement. Start by adopting best practices such as refining operational systems, tidying financial records and obtaining a fair market valuation.
- Preparing the business for future success helps your children manage it effectively. Knowing its value is crucial for setting a fair price and for tax planning.
- Advance tax planning is vital, ideally starting a few years before succession. Strategic actions can significantly reduce both your and your children’s tax liabilities.
- Evaluate your financial needs for a comfortable retirement and consider asset protection strategies.
- Manage superannuation to maximise returns, mitigate risks and minimise taxes in the long run.
- Balancing asset transfer and ownership desires between incoming and retiring owners is crucial for a successful succession.
- Estate planning is necessary, especially if not all children are involved in the business, to ensure fairness.
- Complete our spam-free Succession Planning Diagnostic on our website to start your planning process.
Presented by: Christine Prasetia
video transcript
When selling your business, particularly in family succession where it’s being taken over by your children, it’s essential to ensure the business’s long-term success and your financial stability for retirement.
Start by considering the best practices for selling to an unrelated party. This includes implementing systems and processes for smooth operation under new management, cleaning up financial records to reflect the actual business reality, and obtaining a fair market valuation.
Preparing the business for future success aids your children in managing it effectively. Understanding its worth is crucial for determining a fair price and for tax purposes.
To mitigate taxes, plan ahead, ideally a few years before the succession. There might be strategic actions required to significantly reduce your, and their, taxes.
For your long-term financial security, evaluate what you need for a comfortable retirement. Depending on the payout mechanism for the business, consider asset protection strategies to safeguard your wealth. Also, assess contributions to superannuation and how to manage it to maximise returns, mitigate risks and minimise taxes over the long-term.
Successions can occur in a single transaction or over a transitional period. It’s vital to balance the incoming owners’ need for early asset transfer with the retiring owners’ desire for continued ownership for security. A successful plan addresses these differing needs.
Estate planning is also critical, especially if not all children are involved in the business. Adjusting Wills may be necessary to ensure fairness and just outcomes for all children.
Ultimately, a successful succession plan provides confidence that you can enjoy a secure retirement while ensuring your children can run the business successfully for years to come.
We are here to help, starting with a free Get To Know Each Other meeting. You might also wish to complete our spam-free Succession Planning Diagnostic available on our website.
We look forward to assisting you soon.
Step 2: Save Tax & Duties
✔ Bare Minimum Income Tax & GST
✔ Bare Minimum Transfer Duty
Transferring assets and businesses during succession triggers taxable events. Often there are subtle nuances which require forward planning and implementation well in advance to take advantage of whatever tax or duty concessions there may be to legally minimise the tax burden.
Read Key Points & Transcript
Saving Tax During Family Business Succession in Australia
video key points
- Transferring a business to the next generation can incur significant tax and duty consequences, including Capital Gains Tax, Transfer Duty, and GST.
- Adequate forward planning can help avoid unexpected tax bills and may substantially reduce them, demonstrating the importance of early and proactive tax planning.
- An example highlight how specific strategies, such as leveraging small business CGT concessions and considering unique business situations, can result in substantial tax savings.
- Proactive engagement and planning are essential, with a recommendation to start the succession planning process several years in advance to optimise tax outcomes.
- For business owners contemplating succession, it’s critical to take time for forward planning to minimise taxes legally. We’re ready to assist in navigating these complexities.
Presented by: Rama Yudhistira
video transcript
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.
For Large Family Groups
✔ Family Constitution
✔ Professional Support
A critical concern when planning to pass your business/wealth down to sons and/or daughters is that they might not be able to preserve and grow it, or family disputes might erode it.
Read Key Points & Transcript
Structuring for Family Business Wealth Succession in Australia
video key points
- Successful business and investment succession within families can be marred by issues like tax mishandling, divorce, and poor financial decisions, leading to wealth erosion.
- Effective wealth succession planning is crucial in protecting family wealth, involving considerations such as blood-line clauses, fair market remuneration for family members, and the necessity of external financial oversight.
- Proper documentation of historical and future loans and gifts, alongside considerations for family governance, such as a family constitution and board, play pivotal roles in succession planning.
- Estate planning is essential for ensuring a smooth transition of assets, helping preserve wealth following the death of a loved one.
- Recognising the complexity of wealth succession, the encouragement to seek professional advice reflects the importance of having affairs in order and optimally arranged for the future.
Presented by: Saul Segal
video transcript
It’s really wonderful to see a successful business, or a group of successful businesses and investments, built-up by grandparents and parents, passed down to their children.
What’s horrible to see is that family wealth eroded over time, of which there can be many different causes. Such as, mishandling of tax, divorce, poor investment decisions, even embezzlement.
We know very well that planning for and executing wealth succession plays a critical role in mitigating the erosion of family wealth.
Things which may come up in the succession planning stage are:
- Do you need blood-line clauses or binding financial agreements?
- Have all historical, and planned future, loans and gifts been properly documented?
- For family members working in the business, what is their fair market remuneration?
- Do you need an external Financial Controller?
- How often should the financials be audited?
- Do you need specially-designed trustee and/or appointor companies?
- Do you need a family constitution?
- What dispute resolution mechanisms do you need in-place?
- Do you need a family board and what external advisors will help enhance future performance?
There are also the matters of estate planning, to help achieve a smooth, asset preserving transition following the death of a loved one.
All of this can be quite daunting, and unfortunately we know all too well that people can choose to put this into the too hard basket. Sometimes until it’s too late. It’s not a situation any family wants to be in.
If you’re affairs aren’t in order, or you’re not sure if they are appropriately optimised, then give us a call. We’re here to help.
Do you have any doubt about your current succession documentation?
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- Call Us 1800 818 924
- Email Us ExperienceSuccess@munros.com.au
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308 Fitzgerald Street
Perth WA 6000