It’s not uncommon for many business owners to only ever take short, irregular holidays because they don’t have the structure, systems and team to keep their business running without them for a longer period. Worse still, they have no plan to improve their situation. This effectively ‘chains’ them to their business and also substantially reduces what their business is worth come sale time.
Aside from taking time off for leisure, have you considered what would happen if you were forced to take six months off work due to a serious illness or injury? Would the business survive and how would the bills be paid? Or if you were to die, can you be sure that your business partners would give your family a fair deal?
For these reasons, it is important for all business owners to put in place a properly prepared succession plan. It’s just like a will for the business, but there are often a wider range of scenarios and considerations involved.
As with a personal will, what should be included in a good business succession plan can vary from one situation to the next, however here are some key areas that should always be considered:
Business Structure – in the event of death or retirement, the ownership and control of the business may need to be transferred to the owner’s family or to the surviving business partners. How easily this would occur will often depend on how the business operates, such as through a trust, or a company, or without a separate entity at all.
Succession Agreements – if something happened to one of the business partners, would that partner’s spouse or children be capable of taking over the control of that share of the business? If the answer is no, then a succession agreement can assist the remaining business partners to carry on operating the business whilst allowing for adequate compensation for the former partner’s family.
Insurances – just like personal insurances, business insurance can provide a variety of protection such as temporarily meeting the normal costs of running the business (business expenses cover) or paying for a short-term replacement manager (eg. trauma or disability cover). A life insurance policy linked to the succession agreement that provides the deceased partner’s family with suitable compensation for the transfer of business ownership to the surviving partners is also a good idea.
Powers of Attorney – many small businesses can’t do much without the authority of the key decision-maker, so a Power of Attorney is integral to the succession planning process. It helps the business to physically operate if the owner is incapacitated through illness or injury.
Business Plan—what are the 5 year, 12 month and 90 day objectives for the business? How will they be achieved and who is responsible for achieving each of them. The business plan is the blueprint for the future success of your company.
There is a range of professionals that need to be involved in setting up a succession plan, including a financial adviser, business advisor, lawyer and accountant. Even if you already have a plan in place, make sure you regularly review the agreements and your insurance policies to keep them up to date and reflecting the current value of the business. Like a will, don’t leave this until it’s too late.
One of the challenges we often see in the market is people getting conflicting advice from advisors in different disciplines and become confused as to what the best solution is for their needs. The other challenge is the advisors rarely work together to create any synergy, improving outcomes for the clients.
Fusion’s key point of difference in the marketplace is our “One Lens” approach to managing our client’s affairs. Our clients love the fact that we offer tailored multi-disciplinary solutions to help them achieve greater levels of success in their business and personal life. When you combine this with the time saving and accountability benefits of working with a single solution provider, it’s a powerful resource to have for anyone serious about growing their wealth.
Fusion Wealth Advisory Strategy located in Norwest Business Park is a boutique financial services business specialising in essential services for busy professionals and business owners including Business Strategy, Business Advisory, Accounting and Private Wealth. For more information or to arrange an appointment, please contact us.