Our Succession Planning Series – Part 4 – The Ink has Dried, Are We Done Yet?

July 12, 2018

This is the fourth and final bulletin in our series on succession planning. In this bulletin we look at what happens once we have signed your family business succession plan.

Make sure you implement your vision
It is important that the plan is implemented once it is signed. If the plan requires, for example, the transfer of control or ownership of assets, the creation of new entities, the payment of money or the taking out of life insurance, then the plan will not be effective unless all these aspects are actually implemented.

The involvement of the full range of business advisers will now start to pay off. If those advisors have been involved, then the way the plan is to be implemented will have been considered and the plan will be able to be implemented as intended by the family members.

If all of the business advisers have not been involved, then it may be at this point that difficulties are identified in the implementation of the plan.

Eternal vigilance is the price of family peace
Due to the current financial or tax positions of the various family members some element of restructuring may be necessary before the plan can be fully implemented. The plan may call for a transition of control or ownership over time.

So your succession plan may be a living document, operating for many years.

Successful business owners make sure the plan evolves with their family. Like any successful planning, as the goalposts change, so too does the succession plan.

Hopefully the business will continue to grow during the life of the plan. It is therefore important that the expansion or purchase of any new business or property is implemented in a manner consistent with the plan and in a way that will allow for ease of transition of ownership or control of that property if required by the plan.

Before obtaining any finance or giving any security, you must consider who is ultimately to be responsible for that debt under the plan and structure the finance and security accordingly.

Life/Total & Permanent Disability and income protection insurance will often be an important part of a succession plan. You need to make sure the amount of the insurance cover and the ownership of that insurance is consistent with the plan and changes as circumstances change.

Superannuation is increasingly a larger part of all families’ assets. It is vital that no member of a superannuation fund that has been considered as part of the succession plan signs a binding death benefit nomination or starts a reversionary pension without considering whether that is consistent with the succession plan.

A key aspect of succession planning is often the creation of wealth outside of the business to allow a business owner to transition out of the business without imposing a prohibitive purchase price on a family member transitioning into the business.

You must make sure that you utilise the appropriate entities and structure any finance and security required to create that wealth in a way that allows it to be separated from the business when the time comes.

I don’t do meetings: well now you do
To assist in implementing, maintaining and reviewing succession plans that require longer term implementation, we recommend regular family/business meetings. Regular meetings will promote communication, reduce uncertainty, identify issues, generate solutions and generally keep the succession plan on track.

The meeting should have an agenda and should remain professional and business focused rather than personal. Clear areas of reporting should be identified from different areas of the business where appropriate, for example:

• management;
• financial;
• cropping; livestock;
• innovation;
• specific projects as they develop;
• an update on the progress of specific steps required by the succession plan

Minutes of the meeting should be kept and circulated to all the relevant stakeholders.

The timing of the meetings will depend on the family and business circumstances and what is required under the succession plan but may be weekly, monthly, quarterly or annually.

You might consider the involvement of your advisers in these meetings as required from time to time. For example: if discussing a financial update on the business you may like to have your accountant present; if you were discussing an update on a change in ownership or control of an aspect of the business you may need to have your solicitor involved; or your financier may need to attend if you were reviewing the lending facilities and securities of the business.

The best-laid plans of mice and men 
No battle plan survives contact with the enemy, however having a properly prepared succession plan, which allows for contingencies, is the best protection you can have when looking to plan and implement the transition of control or ownership of your family business.

If done properly. the plan will provide certainty and security to all the relevant family members, allowing them to focus their energies on building the business and supporting their family.

If you would like to discuss any of the issues raised in our succession planning bulletin please contact us.

Click here to read Part 1 of ‘Our Succession Planning Bulletin Series’

Click here to read Part 2 of ‘Our Succession Planning Bulletin Series’

Click here to read Part 3 of ‘Our Succession Planning Bulletin Series’