What You Need To Know About Succession Planning!

Over the next decade, Australia will experience one the largest transfers of business wealth in its history. It is expected that 1 million business owners are planning to sell or pass on their business to the next generation.

But the majority aren’t prepared for the transition, with only 28% of businesses having a formal succession plan in place.

It is crucial to have an effective succession plan in place well before the transition. This ensures its value and legacy are protected into the future. And, getting it wrong could mean the value of something you’ve worked so hard to build could decrease significantly. Meaning a significant impact on its future success on a financial, emotional or familial level.

You only sell or pass on your business once, so it’s important to invest in getting it right!

What is Succession Planning?

Succession planning is the process of preparing for transitioning ownership, control, and management of a business, whether to family, employees, existing owners or an external buyer.

A succession plan can consider everything from who will own and manage the business, to its structure, value, tax implications, funding arrangements, key employees and how the outgoing owner’s retirement will be funded.

Even if you’re not planning to step away anytime soon, preparing early can give you greater flexibility and help protect both the business and the people who depend on it.

It can help you address concerns around:

Decision-making.
Director or manager exits.
Your obligations and responsibilities as a business owner and/or partner.
Whether you can feasibly make the transition or not.

Succession planning can take many different forms depending on your individual situation.

Some scenarios include:

A business promoting the next generation of managers/owners internally.

Transferring your family-owned business to your children.

Preparing a business to be sold to a new owner who will help it grow.

Note: If you are entering into a partnership with someone, a succession plan will also put procedures in place in case anything goes wrong.

Why is it important?

When everything is going well, creating and maintaining a succession plan might not seem like a top priority. However, it is a critical element when thinking strategically about your business and its future.

While retirement is a common trigger for succession, a plan can also help prepare your business for unexpected events such as illness, incapacity, death, changes in family circumstances or an unplanned opportunity to sell.

It can also dramatically increase the value of your business when you sell it or pass it on to the next generation. This is because you can promote growth and progression, but also sufficiently train the next generation to run the business successfully (and not run it into the ground!).

Succession planning is key for family businesses because it ensures a smooth transition to the next generation, keeping the business strong and preserving its values and legacy. It’s all about protecting what you’ve built and securing a future for your family, your employees and your clients, should something go wrong.

Make a succession plan about improving your business as a whole, so when change inevitably strikes, no matter what it may be, the business will be able to adapt to that change as smoothly as possible.

Note: Succession planning should be part of the underlying culture of the company. This occurs where everyone is encouraged to be proactive and prepared.

Generational Succession

Generational succession usually involves the transfer of an interest in a business to another generation of a family (usually younger). It is often a family in business rather than simply a family business.

For generational succession to succeed, communication is essential. This is even if that succession is the sale of the business and the management of the sale proceeds for the benefit of the family. Where generational succession fails, it is often because it has not been formalised until a catalyst event or retirement planning requires it.

The concept of ‘legacy’ is not enough. Successful succession occurs when the following principles are managed well before discontent tears it apart:

Governance.
Family rules.
Aligning values.
Dispute resolution.
Succession and estate planning.

For more on the challenges of generational succession, click here.

Complications of Succession Planning

Business Liabilities

As part of succession planning, it’s important to identify and understand any existing loans, unpaid entitlements or other financial arrangements between the business, its owners and related entities. These arrangements can affect how ownership is transferred and may have significant tax and cash flow implications.

For example, an outgoing business owner might have been happy to lend their personal money to their business while they were in control. However, they’re now transitioning into retirement and might want that loan repaid. It might even be key to funding their retirement.

The next generation, being the incoming owners, want to protect the liquidity and cashflow of the business during the transition, and might therefore have very different opinions on when the loan should be repaid.

Considering and planning for these issues (including any tax implications) should be a part of succession planning.

Family Trusts

When a person holds assets in a trust, those assets will not form a part of their estate, and therefore cannot be gifted under their Will. Instead, they can plan for the transfer of control over the trust in the event of their death and/or loss of capacity.

Many family businesses are operated through trusts which may be poorly suited to intergenerational transfers. This is because discretionary trusts and their assets are not owned by family members in fixed proportions. Also, the income is distributed between beneficiaries according to the trustee’s discretion.

2026-2027 Federal Budget Reforms

From 1 July 2028, the government is proposing a 30% minimum tax on discretionary trust taxable income. For eligible businesses that wish to restructure out of discretionary trusts, the government has also announced an expanded rollover relief for three years from 1 July 2027. So, a family business operated through a discretionary trust may therefore look at restructuring into a company, a fixed trust or a combination of entities. This can be a complicated process, and involves a number of tax, accounting and legal considerations.

These changes don’t mean every business operating through a discretionary trust should restructure. However, they provide another reason for business owners approaching succession to review whether their existing structure remains appropriate for their future ownership, tax, asset protection and retirement objectives.

Don’t Separate Succession Planning from Retirement Planning

For many business owners, the business represents a significant portion of their personal wealth. That means decisions about when and how they exit the business can have a major impact on their retirement.

Before transferring or selling the business, it’s important to understand how much you need to fund your desired retirement lifestyle, where that money will come from and whether you will remain financially connected to the business after stepping away.

This could influence decisions around the sale price, repayment of loans, ownership transfers, superannuation, investments and the timing of your exit.

Consider Tax Implications Early

Transferring or selling a business can trigger significant tax consequences. Depending on your circumstances, small business CGT concessions and other rollover provisions may reduce or defer some of these tax liabilities.

Eligibility can depend on factors including your business structure, turnover, assets and how long particular assets have been held, which is another reason to seek advice well before a planned succession or sale.

Start Planning Before You’re Ready to Leave

Succession planning is key to ensuring a smooth transition when you decide to sell or pass your business on.

Your business structure, tax position, family circumstances, retirement goals, estate planning, business value, funding arrangements and future management can all influence the right succession strategy.

And one change often has multiple implications. What makes sense from a tax perspective, can also have legal, wealth or cash flow consequences elsewhere.

At Aintree Group, our Accounting, Legal, Wealth and Advisory teams work together to help business owners plan for succession from every angle.

For assistance with taking the next step in your business journey, get in touch with our team today!

This is general advice only and has not been prepared with your situation and needs in mind. For individual and personalised advice, we highly recommend that you seek out proper professional advice from your business adviser.

Note: This blog has been updated since publishing to reflect recent changes.