Succession: Are You Planning on Passing Down Your Business?
What’s the Future Plan for Your Business? Ensuring your business continues smoothly even when you’re not in charge is more important than you might think. It’s not just something you see on TV or in stories about wealthy families – it’s about ensuring your business keeps going strong and making the most of its value for you, the owners. When you’re passing your family business down to the next generation, there are a few key things to consider:
- Passing down the business itself.
- Transferring ownership of the business.
- Planning out how this transition will happen.
- Moving from being a family running a business to becoming a family that invests.
Communication is very important to make sure passing your business to the next generation works out well. When it doesn’t work out, it’s because plans weren’t made until something urgent happened or it was time to retire.
Just saying you want to leave a legacy isn’t enough. Successful passing down of a business happens when you plan ahead for things like rules for the family, how to solve disagreements, and how to handle the business and money in the future.
Who will have operational management and control?
Passing down a business to the next generation usually means giving some ownership to younger family members. It’s not just about having a family business; it’s about being a family that’s also in business together. Surprisingly, even though a third of Australian family businesses expect the next generation to own most of the business within five years, only a quarter of them have a solid plan for this.
There are many ways to hand over parts of the business, but they all involve giving away some of the ownership either over time or at a specific point. The new owners might need to pay something for this ownership. Or sometimes, this ownership change might happen when someone passes away.
But passing a business to the next generation has its own set of challenges:
- Figuring out if the younger family members are capable and willing to keep the business going.
- Deciding how much money the older owners need to take out of the business when they pass it down.
- Managing how everyone gets paid, especially in small and medium businesses where the owners sometimes take out more money than they should.
Deciding who gets to make decisions and run the business after the transition. This can be a tricky area, but planning ahead helps.
Transition timeframes and expectations
Passing down a business isn’t just a quick event – it’s a process. Sometimes, the older generation wants to take a step back but still be part of things. This change might take a while, and managing expectations and avoiding problems is important.
The need for greater formality and management structure
Formal rules and plans can make the transition smoother. If you’re passing your business to your family, make sure everyone knows their roles and what’s expected. Sometimes, families use a set of agreed-upon rules called a “family constitution” to help manage things. Others might bring in outside experts to help with advice and decisions.
Managing this kind of change is something we can help you with. If you’re thinking about passing your business to the next generation, let’s talk about how to do it in the best way.