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Business Succession Planning:

Business Succession Planning

Need for Succession Plan

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Negotiating a Succession Plan


Simple Succession Plan:

Simple Succession Plan


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Complete Succession Plan


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


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


Family Ownership

Sale Strategies

Third Party Buy/Sell Strategies

Estate Equalisation Strategies

Family Buy/Sell Strategies

Second Generation Strategies

Debt Reduction Strategies




Sale Strategies


This topic deals with the possibility of a sale of the Business on the Proprietor's Retirement to either:

  • the Children; or

  • a Third Party.


When are Sale Strategies Relevant?

A sale to one party or other might be necessary in order to fund the Proprietor's living expenses during their retirement.

If there are any children who are interested in acquiring the Business, they would normally be the first option.

This option is desirable, because it allows the Business to be kept in the Family.

However, if the children do not wish to borrow the Purchase Price or they could not obtain a Loan on acceptable terms, it might be necessary to consider a sale to a Third Party.


Proprietor Sells to Interested Children on Retirement

The first option is to sell the Business to the interested children, so that the Proprietor can fund their living expenses from the Sale Proceeds.

Funding the Purchase Price

However, if the Business is sold to the interested children, then the children will need to fund the Purchase Price.

This could be achieved by way of Bank Loan or Vendor Finance.

Any Vendor Finance would need to pay the Purchase Price in sufficient instalments over a period of time to fund the Proprietor's living expenses and any tax liabilities.

Financial Burden

This option might not be available if the Business is unable to fund salaries for the interested children as well as service the loan costs or Vendor Finance instalments.


Proprietor Sells to Third Party on Retirement

If the above obstacles are insurmountable, the Proprietor might have to consider selling the Business to a Third Party during their lifetime, so that they can retire and fund their living expenses out of the sale proceeds.

Economic Viability

This option might also have to be considered if the Business cannot sustain the living expenses of the number of children who wish to retain ownership.

In other words, the Business might only generate enough income for one family, not two or more.

Management Issues

The Family should also consider the viability of the Business at the next stage of succession when ownership of the Business might pass from the Second Generation to the Third Generation.

At this stage, the Business could be owned by numerous cousins.

This can create both economic viability and management problems.

The Proprietor might wish to avoid these problems by selling to a Third Party or streaming the Business to a preferred child (subject to the Estate Equalisation Strategies discussed below).

Sale Strategies

In order to achieve the optimum value for the goodwill, the sale should occur when the Proprietor can still remain involved in the Business as a consultant, so that they can help maintain the value of the goodwill that the Purchaser is being asked to pay for.

This option should allow the Proprietor to fund their living expenses during retirement and distribute any surplus cash or investments equitably to the Beneficiaries of their Estate upon their death.

Insurance Strategies

If the Proprietor does not sell the Business during their lifetime, the insurance strategies discussed on this website can help address some of the above issues, at least after the death of the Proprietor.

They can also help identify prospective Purchasers and implement alternative Succession Plans during the life of the Proprietor.


Third Party Buy/Sell Strategies

Click here to read more about this topic.


Copyright: Clover Law Pty Ltd



Adviser Tip

In the case of Retirement, a Complete Succession Plan can pre-agree the Purchase Price and specify a timeframe for payment.

If you do not have adequate insurance for an Insurable Event, your Succession Plan can specify a timeframe for payment of the shortfall.

See more Adviser Tips


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