According to figures released earlier this year by the Australian Small Business and Family Enterprise Ombudsman 54 percent of family businesses have no succession plan and with the highest proportion of business owners in the 45 to 58 year age bracket and approaching retirement age, that’s a problem.
It's one that HHG Legal Group Special Counsel Janene Bon and her team tackle daily in providing succession planning services and advice for businesses to ensure a smooth handover when the current owners retire or can no longer run the business because of poor health, injury or other reason.
She says it’s not just large multi-million dollar enterprises that should be succession planning – even the smallest businesses should be putting future plans in place. Whether it is a one owner florist shop, a couple in partnership operating a newsagency, a family farm or a large privately owned corporate structure – each should have a documented plan for the future of the business.
“Every privately owned business, whether it is run by a sole proprietor or three mates who've gone into a business together with a unit trust structure to hold their respective interests – they all need to put business succession planning into place.”
Once this planning is in place, it should be regularly reviewed and updated.
“Over time, the original family business may have expanded to include more businesses and entities in a complex structure, as well as considerable personal investment wealth. There may also be two or three generations involved. Some family members may be looking for a retirement strategy and others may want to become more involved. This means that the business succession planning needs to be reviewed regularly to cater for these changes.”
“However, not only do businesses need succession planning, but the business owners need to ensure their personal estate planning is in order. There is no point having a detailed business succession plan without the owners having a personal wealth succession strategy, including a comprehensive Will, Enduring Power of Attorney and other estate planning documentation,” Ms Bon explains.
These plans should be put in place sooner rather than later.
“This planning should begin as soon as a person starts or takes control of a business, because succession planning is not just about retirement,” she says.
“Being pro-active is important so that you have documentation in place to deal with death, debilitation, incapacity and retirement.
“It means that the business owners have decided in advance what's going to happen in these events.
“Decisions are not then made on the fly or actions forced upon the other business owners when, for example, the spouse of a deceased business owner demands payment for the deceased’s share of the business when there is limited ability to pay, or the spouse steps into the shoes of their deceased spouse and becomes involved in the business, which may not be welcomed by the other business owners.
“Other issues can arise. If a business owner loses capacity, who has authority to make financial and other decisions on their behalf? Do they have an enduring power of attorney or is an administration application to the State Administrative Tribunal necessary?
“How is business real property held in a self-managed superannuation fund going to be dealt with if a member of the super fund dies? How is the business going to access the warehouse or office that they need to run the business, if it's sitting in a self-managed super fund controlled by people not involved in the business. These are events that need to be planned for.”
Ms Bon says differences of opinion between key players and family members can arise and part of her role is to work with clients in a way that won’t inflame tensions but attempt to achieve the best outcome for all.
HHG Legal Group is well positioned for this work with more than five offices throughout the state and a large team of lawyers working in the business succession and estate planning area.
“Our business succession and estate planning team works closely with our other practice areas, including our commercial and property lawyers, family lawyers and commercial litigation team to provide comprehensive legal services for our clients, as these areas can overlap. Expertise from all our teams provides solutions to issues that can arise in business succession. ” Ms Bon says.