How can you transition your business to the next generation?

Passing your business to a family member can sound simple, but this option will still involve a number of financial and legal complexities. Not to mention an emotional aspect to this type of transaction.

What does the transition to family members mean?

Succession planning involves the transition of part, or all, of your business to members of your family. If this is the route you want to take, then you need to identify candidates from the next generation. This means choosing from your children or wider family. The emotional dynamic of this selection process shouldn’t be underestimated, and independent advice and perspective can be a great help here.

What are the benefits?

The next generation will have the benefit of being mentored by you and learning valuable skills over the years. By being thoroughly trained and thus proving their capabilities, it leaves you knowing who is best suited to a particular role and gives confidence that the business and your legacy will be in safe hands.

Engaging with the next generation and careful succession planning means you can protect the business from any sudden or unexpected change. Training the next generation also means less time and money will be spent on senior recruitment in your management team. For family members, it provides career and financial opportunities to them that may not be available elsewhere.

Transferring a business to the next generation can also achieve several goals that you may wish to accomplish, including continuity for staff, preserving brand integrity and reputation. This creates clarity and reassures stakeholders such as employees, investors, and loyal customers that they’re still in good hands. Succession also continues to provide a sense of identity to the business following its traditions and values.

What’s next?

It’s never too early to start thinking about family succession planning. The sooner you start thinking about the future, the easier it will be to make appropriate decisions and put the right structures in place to minimise the disruption to the business. Whether you wish to completely exit or reduce your hours/involvement, it’s also important to consider how each role will impact future growth.

Having an external, unbiased opinion can certainly help with achieving your goals, so it’s a good idea to seek advice. There can be tax and business implications when it comes to succession, so again, advice is advised.

How we can support you if you are looking to transfer your business to family members.

Our deal advisory, tax and business advisory team can support you through all stages of transferring your business to family members. We will work with you to:

• Help you understand what your business is worth, to ensure the business is transferred at a fair value
• Understand your key objectives and timing so that we can help advise on the most appropriate transaction structure
• Understand the capital/financing requirements to deliver on those objectives and help you identify the right source of capital to meet those objectives, whether that be through cash on the balance sheet, external debt, or new equity from an investor
• Advise all the family members to help ensure a “fair” deal for everyone
• Help you consider the right ownership and management structure going forward and what that might mean for each family member from a value perspective now and in the future
• Advise you of your potential tax exposure for any relevant transactions, both for you personally, the relevant family members and the business to ensure you have clarity over any (often unexpected) potential tax exposure
• Undertake a thorough exploration of your individual circumstances as well as the wider family and business in order to identify and consider any tax reliefs that may mitigate your tax exposure and ensure any tax traps are understood and navigated in order to provide a bespoke tax plan as part of your strategy
• Advise you on alternative deal structures to ensure tax efficiency, where appropriate
• Manage  the Australian Taxation Office (ATO) on your behalf, where appropriate
• Advise you of your reporting requirements to the ATO in order to minimise the burden and give you peace of mind
• Ensure your existing shareholder agreements, wills and insurances are reviewed to keep shares, decision making powers and value with the right people in the event of illness or death
• Assess the viability of different methods of transfer to family members. For example, could you afford to gift the shares or business assets and what would the consequences be, or does full or partvalue need to be realised to support your own financial security?
• Work with each stakeholder in the transaction to assess what other personal planning needs there may be, in addition to the transfer of shares
• Review pre-existing investment and superannuation structures to advise on how they should be arranged and invested alongside any share or business asset sale proceeds

If you require assistance or want to know more, please contact your usual Mazars advisor or alternatively our advisory experts via the form below or on:

Written by: Zoe Davies, James Robinson, and Paul Joyce

Published: 09/11/2023

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