Let’s get down to business and succession planning

Let’s get down to business and succession planning

A business succession plan is a vital tool for the longevity of your enterprise

If 2020 and 2021 have taught us anything as business operators, it’s to plan for the unexpected. While we can never equip ourselves for all possible outcomes and diversions, a business succession plan puts a business in the best position to deal with unforeseen issues.

What is a business succession plan?

A business succession plan is an exit strategy that outlines how a change of management or leadership should be handled to minimise disruption to the business. It’s especially useful when there’s a sudden or surprise event, for example illness, accident, or death.

What do I address in a business succession plan?

There are many factors to consider when preparing your business succession plan, and the planning for every business is different.  Some considerations include:

  • When and how will succession happen?
    Is there a specific point in time or milestone that will trigger succession? There may be different plans for different trigger events.
  • Who will become the legal owner of your business?
    Will the current legal entity be maintained or is a restructure on the cards?
  • What are the tax implications?
    Tax implications are important to consider both for the business and the individual successors.
  • How will business debts be managed?
    Develop a plan to repay debts and loans, including the potential need for investment and re-financing.
  • What about insurance?
    Insurance policies should set out what happens in the event of damage, injury, or death.  You should consider maintaining business insurance, and also personal insurance policies to protect your family, for example, life insurance, income protection insurance, and total disability insurance.
  • Who are the key personnel?
    Who else will be in a leadership or management position?
  • How will you value the business?
    Engaging an external valuer can be helpful in attaching a monetary figure to your business, especially when it comes to reputation and goodwill (which are harder to quantify).
  • How will you deal with politics?
    Implementing succession plans can get messy, especially if the business is family owned. It’s important to carefully consider the politics between key people.
  • What happens with commercial agreements?
    How will your employees, customers and suppliers be affected by new arrangements, and what needs to be addressed? How will any guarantees be managed?
  • What are the future plans?
    What’s in store for the future of your business? Will it continue, or is the plan for a future sale?

The more thought and detail the better. A solid business succession plan should allow for a smooth process if you need to step away from your business for a short time, or permanently. 

How do I choose my successor?

Choosing a successor is a big decision, but it’s not something that you need to do on your own. Many of our clients engage business advisors to provide an unbiased perspective.

Your successor may be a family member, business partner, employee or external buyer or you may want to have multiple successors. It is good practice to name a back-up successor as well, just in case there are any unforeseen circumstances regarding your preferred successor. 

Who will manage the business?

One of the most overlooked factors of a business succession plan is who will manage the day-to-day operations of the business. Depending on the size of your business, it may not be practical for your successor to assume a management role. When considering who might be the best person (or people) for the job, it’s a good idea to choose someone who has a different skill set from the successor. Drawing on expertise across the business is the best way to ensure you have all bases covered.

How should the business succession plan manage ongoing review and transition?

It’s important to remember that a business succession plan should not be prepared then forgotten. A good succession plan should be continuously reviewed and updated to reflect:

  • The growth of the business
  • Any change in direction
  • New key employees and stakeholders 
  • Valuation of the business.

Once you have identified your successor (or successors), you should start training them to be ready to take over when the time comes. As time goes on and your exit is nearing, your successor should be progressively more involved in overseeing key business activities and decision-making. 

Constant communication is key. Lack of communication between directors, stakeholders and family is one of the biggest threats to the failure of a succession plan. Communicating your personal goals and the vision for the business, as well as considering input from stakeholders, is essential for a successful implementation of your succession plan.

What are the formalities?

You should have the appropriate documentation to support your business succession plan. What is required will depend on your business structure and plan. The documentation may include:

  • Buy-sell agreement
    This is a legally binding agreement between the owners or partners of the business to outline what will happen if an owner or partner leaves the business. This agreement will outline the legal considerations around what happens with that owners’ shares and who will take over their responsibilities.
  • Registration transfers
    Some assets of the business are registered with a third party, for example properties or trade marks. It is easier to organise the transfer of assets to your successor when you are still involved in the business, as it can involve signing documents and dealing with regulators.
  • Assignment or novation of commercial contracts
    Similar to registered assets, signing over commercial contracts to your successor is a key step in ensuring that any contracts that are necessary to continue the business are effectively transferred to your successor. Sometimes, this can involve negotiation with your suppliers/contractors if there is no clear path for assignment or novation set out in the contract itself.
  • Loans, warranties and guarantees
    Consider what documents are needed to ensure the correct entity or person is ultimately responsible for the business.
  • Your will and power of attorney
    Make sure your will and power of attorney documents align with your succession plan and clearly outline the obligations and rights of your beneficiaries.
  • Constitution and successor director
    If there’s a company in your business structure, the rules of your constitution and automatic appointment of your successor director are to be considered.
  • Family trust
    If there’s a family trust is in your business structure, the deeds and relevant resolutions must be considered.
  • Partnership agreement
    If you are in a partnership, the written or verbal agreement must be considered.

There’s plenty to be considered in addition to any legal documentation. We also recommend planning for tax and duty implications to ensure you are in the best position for any concessions that are available.  

The Final Word

A well-considered business succession plan is the best way to ensure that your business can function without you, and it helps to avoid confusion and conflict in the future. There are many factors to consider and it can feel quite overwhelming, which is why it’s best to start early. 

Contact us for business succession plan advice.


For further information, please contact Jeffrey Pinch or Tanya Lynch of our office.

This Article was written by Alexandra Shaw



DISCLAIMER: We accept no responsibility for any action taken after reading this article. It is intended as a guide only and is not a substitute for the expert legal advice you can receive from marshalls+dent+wilmoth and other relevant experts.