Why is a Business Succession Plan needed?

Half of all Australians over the age of 30 can expect to be diagnosed with a serious illness, disability or injury at some time during their lives. Where a business is owned by two of more people, the death or permanent disablement of one owner can create financial hardship for the other owner(s).

A sound business succession plan is important. If business owners have not implemented plans to safeguard their business, the result may be:

  • The continuing owners(s) may not be able to afford to buy out the outgoing owner’s share of the business, or
  • The outgoing owner’s family may receive less than the market value for his\her share of the business, or
  • In the case of death, the estate may insist on immediate and direct involvement in the control and operation of the business but may not have the expertise to handle this
  • In the case of death,  the estate of the deceased business owner may be forced by circumstances to sell his or her interest in the business to an outside buyer at fire sale values
  • In the case of traumatic illness (eg. Heart attack), there nay be uncertainty over the likelihood of the business owner recovering or ever returning to work
  • The continuing business owners may end up doing all of the work, but splitting the profits with a non-working owner.
  • The business may no longer be viable and be forced to wind-up

The lack of proper agreements can make negotiations to buy-out to continue running the business difficult. For example:

  • Partnerships – under partnership law, the partnership is automatically dissolved upon the death of a partner. The business can only continue if the deceased partner’s beneficiaries agree, otherwise the business needs to be liquidated.
  • Company ownership – the company continues to exist after the death of a shareholder. However disputes can arise around the distribution of the company profits with both active and inactive owners.
  • Gives peace of mind to the continuing business owners so that they can buy out the departing business owner’s share of the business without putting the business of their personal finances in jeopardy.

When a business has more that one owner, business succession planning is essential. The death, injury or disablement of a co-owner can cause severe problems for a business and can throw ownership into disarray.

All the years and hard work in building a business can be lost if provision for succession is not planned.

The interests of the deceased’s family or beneficiaries also need to be taken into consideration. The family may need funds urgently, and will want to realise the true value of their interest in the business. The beneficiaries of the deceased may also want to become involved in the business, and this could be a problem for the remaining owners.

A business succession plan ensures that the needs of business owners and the beneficiaries\family of a deceased or disabled owner are met, and that the ownership of the business remains consistent with the wishes of the owners.

HFI was established in December 2003 by Roy and Nadine Hall whom together have over 25 years of experience in the Financial Services Industry. HFI is a complete One Stop Shop for all of your Financial Services needs. We provide a total service with ongoing support and advice for all Finance, Insurance, Superannuation and Investment requirements.

Because we are equipped in the field of Finance and Insurance we are well equipped to provide our clients with service that balances individual needs with required budget outcomes.

To find out more, contact Ricky Smith on 0450 413 020

Hall Finance and Insurance Solutions
Suite 11, Level 1, Cnr Harley St & Brisbane Rd
Labrador QLD 4215

P O Box 174, Helensvale QLD 4212

Phone      07 5537 3733
Fax            07 5537 3833