Some pointers about Succession Planning

Posted on: September 30, 2013
Posted by: Bob Budreika

succession planningIn my 20 plus years in the financial services industry I have noted that very few small family operated businesses have a truly effective succession plan in place that provides direction and security for all concerned. This important aspect is often avoided or dismissed as not being important or something that can always be addressed when the time is right. There is never a right time.  For are a host of reasons people put off transitioning their business to the next generation.  For some, it’s not knowing where to start or how to go about implementing a succession plan. For others it’s about being able to let go and know that the next generation is capable of running the business successfully.  Whatever the reasons, the result of inaction is a disaster and has the ability to hamper the viability of the business by creating dissent amongst family members which can often lead to a break up of the business. This is especially so if an estate has not been carefully considered.  The ultimate failure is where an estate is contested.

The starting point in developing a transitioning plan for a business is to learn and develop a good understanding of the family’s situation as well as the things that are important to each person.  It’s important to have this out in the open as it forms the basis of a succession plan.  After all, the aim of a succession plan is to consider all peoples’ objectives and then create a structured plan so that everyone knows where they stand and what each expects of each other.  The ideal outcome of this exercise is that each family member achieves their objectives.

Because the mix of family and business can breed a cocktail of emotion, having someone independent of the situation can usually produce more effective results.  This is where our knowledge and experience can add value because we are able to ‘ask the hard questions’ and open the lines of communication.  Family members tend to be more open (and honest) if there is someone independent involved.

Estate plans don’t need to necessarily take effect when parents die.  In fact, it can be very beneficial to provide for off farm family members while parents are alive.  This is called giving with ‘a warm hand’ and I have witnessed tremendous satisfaction from both the giver and receiver.

Being fair to all beneficiaries is not always an easy task especially where a farming business is involved.  Land is an asset that is often intended to be passed onto the next generation and this is where problems and misunderstandings begin between family members.

As an agreement is developed, a good practise is for the outcomes to be documented.  Eventually this might also mean updating Wills and investment beneficiary nominations including insurance and superannuation accounts.

Bob Budreika is a specialist financial adviser and an Authorised Representative of Gold Financial Pty Ltd ABN 50 113 653 946, AFS Licensee 291389.

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