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Passing the Baton: Why Every Business Owner Needs a Succession Plan

All business owners want to see their business have longevity and flourish; yet they may not want to be the one that leads them the entire way along. At some stage you could want to pass your business down to a family member, an existing company member, or maybe even sell it completely to retire on the profit.

In an ideal situation, you would choose when and how you would make your exit from your business, but things don’t always go according to plan. For example, say your personal life was hit with a huge financial burden, giving you no choice but to sell your company. This situation would be stressful enough in itself without having the business or your family suffer further.

To ensure the future of your business and minimise the overall stress levels, it is important to design a Business Succession Plan. How important? Well think of it like this – A Business Succession Plan to a business is just the same as what a Will is for a person. Everyone needs a Will, and every business needs a Business Succession Plan. They are both there to protect you and your family.

You may not think that your business needs a succession plan, because the ‘next in charge’ or your children would love to take the reins. This naïve view is a recipe for disaster, as anything could happen.

Imagine this scenario…

A business has two partners, and one business partner unexpectedly dies in a car accident. The business has no succession plan in place and the surviving partner automatically ‘falls’ into business with the deceased partner’s spouse, and thinking this is an ideal situation as they already get along in each other’s personal life.

But you never know the nature of a business relationship until it plays out…They might butt heads on serious financial decisions that could lead the future direction of the business astray or halt it all together. Or perhaps the spouse doesn’t want anything to do with the business at all, and is willing to be bought out by the highest bidder. The possibilities are endless.

So what can be done to avoid these situations?

Passing the Baton

You need to plan who your successor will be. Whether it is a family member, another business owner or a senior member of the company, you need to choose them wisely. Many business owners want to ‘keep it in the family’, but caution should be taken with this option as more than 65% of family businesses fail in the hands of the second generation, and a further 20% fail when passed onto the third.

Passion and skills are needed to run a business. Skills are things that can be acquired, but you cannot drive passion into someone. When selecting your successor you need to find someone who is passionate about your business. If someone in your family really is passionate about the business and has the skill set to step into the role, then that’s great. If not, then your business will be better off in the hands of someone else.

Plan early, plan often

Chief executive and president of the Australian chapter of the Exit Planning institute, Craig West says that it can take a business up to two years to be ready for sale and find the right buyer.

“If you do it quicker, you’ll leave money on the table,” he says, and we agree.

If you are still unsure about a succession plan, or don’t have one for your business at all, now is the time to get started. Baggetta & Co would be happy to assist with any queries or questions regarding the setup, just contact our office.

It is important to constantly review your business succession plan, as you would all business documents. This is because circumstances may change; for example, the successor you appointed is no longer passionate about the industry or work.

Many business owners purely think of their succession plan options to themselves, and that’s the only action they choose to take. It is extremely important that you document your succession plan, to make sure your wishes are adhered to in any case you may be unable to continue running your business. We can guide you in creating the most effective succession plan for your business, and also make sure that the correct insurances are in place to ensure that the business can continue to run as smoothly as possible, in case you are no longer able to run your business through no choice of your own.

You have worked tirelessly to get your business to where it is today. Ensure your hard work doesn’t go to waste by preparing for uncertainty and unexpected events with a business succession plan.

IMPORTANT:

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

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The information provided on this website, including the material and contents provided in the website publications, are informative in nature only and you should not act specifically on the basis of this information alone. It should not be used as a substitute for legal, business, accounting, tax, financial planning or other professional advice. If expert assistance is required, professional advice should be obtained.

Paul Baggetta is the Founder & Principal of Baggetta & Co. Paul Baggetta has been a Taxation Accountant since 1981, a Financial Planner since 1998, and in 1993 qualified as a Real Estate Licensee, holding a Triennial Certificate (currently not trading) and operated his own Real Estate business for property investment clients for over 5 years as a second business.

Financial planning services are provided by Paul Baggetta as an Authorised Representative (No. 261469) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969. Australian Financial Services License No. 223135.

 

Taxation & Accounting services are provided by Paul Baggetta as a Registered Tax Agent (No.61487008) and is a Member of SMSF Association, FIPA & NTAA.