It’s common for business owners to take short, irregular holidays because they don’t have the backup to keep the business running without them.
Have you considered what would happen if you were forced to take six months off work due to a serious illness or injury?
Would the business survive and how would the bills be paid? Or, if you were to die, can you be sure that your business partners would give your family a fair deal?
For these reasons, it’s important for all businesses to have in place a properly prepared succession plan. It’s a bit like having a Will for the business, but often involving a wider range of scenarios and considerations.
Just like personal Wills, what needs to be included in a good business succession plan can vary. However, here are some key areas that should always be considered:
- Business structure: in the event of death or retirement, the ownership and control of the business may need to be transferred to the owner’s family or to the surviving business partners. How easily this would occur will often depend on how the business operates, such as through a trust, or a company, or without a separate entity at all.
- Succession agreements: if something happened to an unrelated business partner, would you want their spouse or children to take over their share of control in the business? Or if the same happened to you, would your own family have the skills and desire to step into your shoes? If the answer is no, then a succession agreement can assist the remaining business partners to carry on operating the business whilst allowing for adequate compensation for the former partner’s family.
- Insurance: just like personal insurances, business insurance can provide a variety of protection such as temporarily meeting the normal costs of running the business (business expenses cover) or paying for a short term replacement manager (i.e. trauma or disability cover). You might also need a life insurance policy linked to the succession agreement, so that the deceased partner’s family would receive suitable compensation for the transfer of business ownership to the surviving partners.
- Powers of Attorney: many small businesses can’t do much without the authority of the key decision maker, so a Power of Attorney is integral to the succession planning process. It helps the business to physically operate if you are incapacitated through illness or injury.
A range of professionals may need to be involved in setting up a succession plan, including your financial adviser, lawyer and accountant. Even if you already have a plan in place, it is a good idea to review the agreements and your insurance policies regularly, to make sure they are up-to-date and reflect the current value of the business.
Like a Will, don’t leave this to when it’s too late. Talk to one of our financial advisers today.