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Site Map:

Site Map

Adviser Updates:

Adviser Updates

Publications and Documents:

Publications and Documents

 

Business Succession Planning:

Business Succession Planning

Need for Succession Plan

Need for Asset or Buy/Sell Strategy

Need for Liability or Key Person Strategy

Negotiating a Succession Plan

 

Simple Succession Plan:

Simple Succession Plan

 

Complete Succession Plan:

Complete Succession Plan

Strategy

Financial Needs

Insurance Funding

Retirement Funding

 

One Page Strategy:

One Page Strategy

Asset Needs

Liability Needs

Personal Needs

Who Pays the Premiums?

Valuing the Business

Simplifying the Valuation Issue

Equity vs. Loan Capital

 

One Policy Strategy:

One Policy Strategy

Flexibility

Dual Role of Personal Cover

Dual Role of Debt Red'n Cover

Security & Tax-Effectiveness

Cost Savings

Pre-Agreed Purchase Price

Apportionment of Premiums

Methods of Aggregation

 

Multiple Policy Approach:

Multiple Policy Approach

Super Fund Ownership

Tax Disadvantages

Cost Disadvantages

Other Disadvantages

Geared Premium Funding

Super Buy/Sell

 

One Page, Two Policy Strategy:

One Page, Two Policy Strategy

 

Other Issues:

Tax Deductibility

Inadequate Insurance Proceeds

Vendor Finance

Changing Needs

Future Growth of Equity

Trauma Buy/Sell Strategy

 

Sole Proprietors and Families:

Sole Proprietors and Families

Overview

Family Ownership

Sale Strategies

Third Party Buy/Sell Strategies

Estate Equalisation Strategies

Family Buy/Sell Strategies

Second Generation Strategies

Debt Reduction Strategies

 

 

Why Do You Need a Succession Plan?

 

The best way to understand the role of a Succession Plan is to imagine yourself in the situation where the catastrophic or disruptive event has occurred with respect to one of the Proprietors of the Business.

Set out below are examples of the questions people ask when they think about a Retirement or Death in the Business.

Click here to read a more complete list of questions that might help you understand the need for a Succession Plan.

The questions differ according to whether, when you think about the situation, you imagine yourself wearing a Purchaser's Hat or a Vendor's Hat.

The problem is that you never know whether you will be a Purchaser or a Vendor if one of the events occurs.

 

Wearing a Purchaser's Hat...

If your Business Partner died, would you like to be in business with their Spouse...or their children...or their Lawyer?

Click here to read more examples of the questions a Purchaser can ask.

 

Wearing a Vendor's Hat...

Would you like your Family to miss out on the value that you have built up over your life, just because when you died, your Partners couldn't (or wouldn't) pay the real value of your Equity in the Business?

If the answer is No, then you need a Business Succession Plan...

Click here to read more examples of the questions a Vendor can ask.

 

Retirement

Similar issues arise in the case of Retirement.

Would you be prepared to work longer, because your Partners can't or won't pay the real value of your Equity in the Business?

Would you accept a lower Sale Price?

If you're one of the Purchasers, how do you deal with the situation if the Retiring Partner wants an unrealistic Sale Price?

No matter what the Sale Price, how would you fund it?

What if you couldn't borrow the funds from your Bank?

What if the Bank isn't prepared to lend all of the funds?

What if the Bank wants security that you don't have or don't want to give them?

 

Avoiding the Problems

If you want to solve these problems before they blow up, then you need a Business Succession Plan...

 

The Purpose of a Business Succession Plan

The purpose of a Business Succession Plan is to pre-agree a strategy that will enable a Business Proprietor to exit a Business upon:

The legal framework of the Succession Plan is set out in a Business Succession Agreement.

A "What If Agreement"

You can probably understand from the above questions why many IGS Clients call their Agreement a "What If Agreement"!

It takes away all of the uncertainty about a What If Event!

 

Negotiating a Succession Plan

The above questions highlight the different perspectives people can have on Retirement and Death.

First to Die or First to Buy?

Unfortunately, in a business relationship, you never know whether you will be "the first to die or the first to buy".

Similarly, at the risk of perpetrating an even worse rhyme (!), when it comes to Retirement, you never really know whether you will be "gone tomorrow or having to borrow" (to pay out the Vendor).

Thinking as Both a Vendor and a Purchaser

Ultimately, it helps to place yourself in the position of both a Vendor and a Purchaser, when you think about a Succession Plan.

When you're the Vendor, you will negotiate diffferently to how you would negotiate if you were a Purchaser.

A Vendor wants to maximise the Sale Price, a Purchaser wants to minimise it.

So your expectations and how you would approach the negotiations depend on which hat you are wearing.

The chances are that your Partners would have the same expectations as you would in the same situation.

The Time to Negotiate and Agree

This makes for a problem if we wait for the event to arise.

If we wait, everyone will know which hat they are wearing and they will negotiate from that perspective.

If we negotiate a Succession Plan now, nobody knows whether they will be a Vendor or a Purchaser.

However, if we understand the legitimate expectations of a Vendor and a Purchaser, it makes it a lot easier to design an even-handed Succession Plan.

 

The Need for an Asset (or Buy/Sell) Strategy

An important component of this strategy is the need to sell the Business Proprietor's Asset or Equity in the Business.

Failure to document a strategy is a recipe for dispute, delay, expense and potential destruction of the Business and the wealth of the Proprietors.

Click here to read about the need for an Asset (or Buy/Sell) Strategy.

Other Asset Needs are discussed here.

 

The Need for a Liability (or Key Person) Strategy

The Asset (or Buy/Sell) Strategy is only one component of a Succession Plan.

In many cases, the Succession Plan might have to deal with Liabilities of or to the Business.

A Succession Plan might also have to address issues like:

  • the extinguishment or release of Personal Guarantees for Business Debt; and

  • the repayment of Loan Accounts.

These are Liability Needs that require a Liability or Key Person Strategy.

 

Different Types of Succession Plan

This website differentiates between:

Click on one of the above links to find out more about each type of Succession Plan.

 

Copyright: Ian Gray Solicitor

 

 

Adviser Tip

A Complete Succession Plan is not just about Death, it's not just about Insurance and it's not just about selling your Equity.

See more Adviser Tips

 

 

 

 

 

Current Marketing Schedule

Current Marketing Schedule

Ian Gray travels to most capital cities regularly throughout the year and is available for Meetings.

Please click here to see his availability in Brisbane, Sydney, Melbourne, Adelaide and Perth.

Please contact us to arrange an appointment or teleconference.