Small Business Succession Planning January 27, 2026

Small and medium sized family businesses form a significant portion of Australia’s economy. Many of these businesses look to pass control to younger generations of the family once older generations cease to be involved in the business. However, without a clear succession plan, transitions can lead to misunderstandings, family disputes, and financial burdens.

This article explores the essential steps in creating a successful succession plan that secures your family’s legacy and business future.

Importance of Succession Planning

Succession events can include a key person in the business taking a step back, or where a person becomes incapacitated or passes away. While retirement is often planned ahead of time, succession events can happen unexpectedly and leave pressure on members of the family and business to make decisions in difficult times. A successful plan reduces this burden and assists your business in transitioning as seamlessly as possible.

Future of the Family Business:

A well-structured succession plan can help ensure that your business continues to thrive without disruption. By planning early, you can decide who will manage the business and how ownership will transfer, avoiding the stress of a crisis-driven decision.

Managing Family Expectations:

In family businesses, emotions often run high when it comes to inheritance. By clearly defining who will manage the business and who will own it, you can prevent disagreements that might otherwise cause family conflict.

Minimising Financial Impacts:

Transfers and sales of businesses can attract tax liabilities. To ensure that family members don’t become liable for excessive business taxes, succession strategies can minimise the fees that have to be paid in the process of transitioning the company.

What goes into a Succession Plan?

Key things to consider before officially creating a succession plan are:

• Clear Leadership Transition: Who will take over, and in what role? Consider whether there are current issues or goals that need to be addressed and choose the best fit for each role to secure the business’s future.
• Clear Ownership Transition: Who will take shares in the company, and in what proportion? Common ownership changes include an existing business partner buy out an outgoing one, an external purchaser entering an agreement or ownership titles passing to family members.
• Timeline for Change: When will the new management begin?
• Involve Key Stakeholders: Include key employees or advisors in the planning process to provide diverse perspectives and support during the transition.
• Post-Succession Structure: What will the business look like? How will employee responsibilities evolve?
• Conflict Resolution: What dispute resolution procedures will be used if there are disagreements?
• Legal and Financial Considerations: Including share transfers, insurance policies, taxes, and contracts etc. Seeking professional advice is the best practice to understand the legal and financial requirements of succession and mitigating the risks attracted.
• Contingencies: What happens if the plan doesn’t go as expected?

Common Issues in Succession Planning

Misalignment between wills and succession plans

A business owner’s will and succession plan are usually drafted separately. Inconsistencies between the two can leave descendants with more or less of the family business than expected and can incite conflict. For example, let’s say a business owner intends for their eldest child to take over the business, but their will divides all assets equally among their children. This can lead to confusion and potential legal action. Aligning your will and succession plan is therefore paramount to ensuring family members receive what they are expecting.

Management vs Ownership

Management and ownership of a business carry different responsibilities, but when combined they can leave the operation of the business in the wrong hands. The two should be considered separately so that the best person to conduct the business is in management, while family members can maintain ownership if that is the desire of the outgoing person. Clearly defining who takes these roles can avoid this confusion.

Owners should also consider if they wish to retain a shareholding while stepping aside from the management of their business. A clear intention is essential for succession planning.

Poor Communication

Communicating a succession plan is particularly key for family businesses. Where retiring family members have not been transparent about the plan for the future of their business, disputes often arise as expectations are not be met. Clear and comprehensive conversations should be had early in the succession planning stages to ensure all family members are aware of what will happen during a succession event.

Family Dynamics

Family businesses face a unique situation where professional and personal relationships become intertwined. Transitioning the family business to the next generation can be an emotionally charged process, and even the most peaceful families can encounter tension during these times. A clear succession plan can help avoid disputes. Many families in business together are developing a ‘Family Constitution’; this is a document outlining the steps a family agrees to take where disagreements arise, as well as each family member’s role and responsibilities, like a dispute resolution procedure in a company constitution. This helps keep emotions from clouding business decisions and provides a structured framework for addressing disagreements.

Developing Your Succession Plan

Once you have considered these preliminary questions and the possible issues outlined above, the succession plan itself can be created. Consulting with experts is the best method to ensuring your succession plan is both effective and meets any legal requirements. Succession planning isn’t a one-time task. Start early, and review your plan regularly to ensure it remains aligned with both family and business goals.

1. Outline the Succession Option
The first step is deciding the future direction of ownership and management. Consider the following options:

• Family Succession: Will the next generation take over both management and ownership?
• External Sale: Will the business be sold to a third party or another management group?
• Partner Buyout: Will existing business partners buy out the outgoing shareholder’s stake?

It’s important that whichever option you choose, your plan must comply with the existing company constitution. Most constitutions specify procedures for things like a director’s departure and share transfers. Ensuring your plan aligns with the constitution helps avoid penalties under the Corporations Act for both incoming and outgoing stakeholders.

2. Obtain a Business Valuation

A proper valuation of the company is essential for developing a sound plan. It offers clarity on the business’s value, especially if you plan to sell or transfer shares. Small businesses may be eligible for Capital Gains Tax (CGT) concessions, which can reduce tax liabilities when assets are transferred. A valuation is key for determining eligibility for these concessions, as well as determining a transparent and fair sale price for shares or the business.

3. Adhere to Legal and Regulatory Requirements

Succession planning involves significant changes to the business’s structure. These changes may require formal notifications to regulatory bodies like the Australian Taxation Office (ATO) and Australian Securities & Investments Commission (ASIC). The relevant authorities must be informed if ownership, management, members or officeholders change. Ensure that your succession plan clearly outlines the who, when, and how for notifying these bodies to avoid legal and compliance issues.

The transfer of business assets, ownership and shareholdings can also attract tax liabilities. Family Trust Distribution Taxes can also be invoked where a family trust structure changes, affecting its compliance. Consider these when writing the succession plan so that family members understand what payments they may become liable for, and where these payments must come from.

4. Plan for Contingencies

Succession doesn’t always go as planned. What if a designated successor is unable or unwilling to step into their role? What if an incoming purchaser can’t obtain finance, or there are disagreements with new management? Have a contingency plan in place that identifies alternative leaders and outlines what will happen in unforeseen circumstances. This reduces the risk of confusion or disputes over ownership and management.

5. Outline Transition Mechanisms

The transition period is often the most crucial yet fragile step in succession. It is essential to establish clear procedure for:

• Buyouts: If a shareholder is leaving, how will their shares be bought or transferred? Compliance with the company’s existing constitution is important to this step.
• Decision Making: Who will make decisions during the transition, particularly where there is uncertainty about leadership?
• Transfers: who will licences, leases, intellectual property rights and other legal titles associated with the business pass to once the owner steps back? Defining who takes ownership of these titles and the process of transfer is essential for a smooth transition.

6. Communicating the Plan

The final step once the succession plan is complete is to communicate it clearly to all relevant parties. Once the plan is developed, share it openly with all key stakeholders, including family members, business partners, and key employees. This ensures everyone understands their role in the transition and what is expected of them, minimising potential conflicts later on.

Conclusion

Planning for succession and engaging the appropriate professionals should be commenced as early as possible, regardless of whether key business figures plan to step back from the business in the near or distant future. Including younger generations in conversations around governance and ownership helps them to understand what their expectations should be, while ensuring a clear future for the business is outlined. A secure succession plan shields your family from unnecessary burdens where unexpected and unfortunate events may occur.

By putting a thoughtful and detailed succession plan in place, you protect your family’s legacy and the ongoing success of your business.

Online Resources available for reading:

• ASIC Guidance on Corporate Governance
• CPA Australia’s Guide on Succession Options for professional practices
• business.gov.au Basic Succession Planning Guide (alongside other business resources on the website)
• Family Business Association’s articles on family conflict (alongside their business advisor services)
• ATO Information on CGT concessions eligibility (alongside other guides on corporate taxes)