Succession Planning Newcastle

To ensure the long-term success of your business, it is critical to establish a well-designed succession plan. Coordinating the transition of your business to your successors can be an arduous process. However, with our years of experience we can address the complex issues of business continuation, removing the stress from your shoulders.

What happens if you don’t do business succession planning?

YouTube link above. A great eye opener and very frankly put, well worth a look. Time 8:36 minutes. LAW CENTRAL VIDEO – BRETT DAVIES, PRINCIPAL CIVIC LEGAL


case study

Jack’s Estate Plan

(This example is for illustrative purposes only)

  • Is 55 years old and has three teenage children
  • Draws average $50,000 pa from family business
  • Wife Amy stays at home to look after the home and their children
  • Live in their own home ($200,000), and have some Telstra and AMP shares ($5,000)
  • Main debt is their mortgage ($50,000)

 What financial risks are Jack and his family exposed to?

If Jack dies, or becomes injured and unable to work:

  • Income from business may be lost
  • Will Amy go back to work?
  • If Amy goes back to work after being out of employment for a number of years, will she be able to earn an income that is sufficient enough to cover the current liabilities?
  • Mortgage may need to be repaid
  • Medical and/or funeral costs
  • Savings for children’s higher education fees at risk
  • What about their future retirement plans?

By taking out insurance, Jack and his family can protect against these risks

Jack Sucession Planning 1

“Estate planning for your business”

What happens if a business partner wants to leave?

What happens if a “key person” in the business is unable to continue working due to death or injury?

Let’s revise Jack’s estate plan …

  • Jack runs the family business in partnership with his brother, Jim
  • The business is valued at around $2m
  • Jack has acted as personal guarantees to raise funds for the business
  • Jack and Jim are both ‘key people’ in the business

What additional issues are now involved?

If Jack dies, or becomes injured and unable to work:

  • Profitability of the business would be affected without Jack; a replacement employee may be required to assist Jim
  • Business debts may be called in (their personal assets also at risk due to guarantees)
  • Jack’s shares in the business to be passed to wife and children, but do they all want to be involved? and Would Jim want them involved?

Business succession planning, including business insurance and a buy/sell agreement, may assist.

Solution for Jack using business insurance and a buy/sell agreement

    • Buy/sell agreement – meaning the partners agree that the surviving business partner will buy the share in the business from the deceased partner’s estate, and the estate will agree to sell.

Funding for the agreement can be met by insurance policies taken out on the life of each business partner.

Jack Succession Planning 2

Another use of the business succession plan

  • Jack’s only son works in the family business with him
  • His two daughters are hoping to study at University and pursue careers in Geology and Arts, respectively
  • In his estate plan, Jack would like his children to benefit equally from his estate
  • The insurance proceeds could be used to “buy out” the daughters’ share in the business, and the son could take over the business on his own

Extensions of the basic business succession plan

  • Buy/sell agreement could contain conditions precedent or include put/call options
  • Insurance may also be required to cover business debts, replacement employees, etc
  • Need to consider ownership of the insurance – self, cross, joint, company, trust – as well as the cost of the insurance
  • Also consider the complex tax implications of these arrangements

Note:  Specialist tax and legal advice should be sought in these circumstances

Contact Us for more information on forming a plan that facilitates a hassle-free continuation of your business!

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