The fourth and final season of HBO’s hit series, Succession, is drawing to a close. Captivating audiences with its gripping drama and pithy one-liners, this season reveals who will succeed Logan Roy and take over the Waystar Royco media conglomerate.
Set against a backdrop of mansions, private jets and luxury yachts, this conniving family of billionaires couldn’t feel further from the everyday Australian reality. And yet, for SMB owners operating a family business, the more pragmatic side of Succession delivers some very real takeaways.
Family businesses are a big deal in Australia. In fact, they represent around two thirds (67%) of all Australian businesses. And while most family businesses don’t face the same kind of shady deals and backstabbing that plagues the Roy family, all businesses – no matter the size – should be thinking about succession.
Developing a succession plan
There comes a time for every business owner to step down. Whether it be due to illness, retirement, or simply moving on to other adventures, developing a succession plan is key to ensuring a smooth transition of the business. And of course, in the case of an untimely death, immediate friends and business partners should be left without a doubt about next steps for the business.
However, a recent KPMG report showed that only 15 per cent of Australian family businesses have completed a documented transition plan for their business.
The report cites a number of possible reasons for this - from simply not being aware of the need to prepare one, to denying an impending need to handover the business, through to some leaders having aspirations to complete certain tasks before they hand over the reins. Regardless, having a documented plan in place ensures business leaders and family members are all on the same page. A small business specialist accountant is your first step to a succession plan.
The first step in a succession plan is to choose a successor – whether this be a family member, friend or colleague – and clearly make this known. (Not hidden in safe with the successor’s name scribbled down, and then ambiguously underlined-slash-crossed out, as was the case with Logan Roy’s succession document.)
Ensuring the business is valued and being aware of your legal rights and obligations are also an important part of succession planning. The Australian government has a free succession plan template available to help business owners prepare.
Having the right insurances in place helps to support business continuity during times of transition or unexpected events – and business succession is no exception.
While not all eventualities can be covered, there are a range of insurance options that business owners should be considering when it comes to succession planning, such as:
Life Insurance: Life insurance is essential for anyone wishing for loved ones and dependants to be taken care of financially in the face of uncertainty. However, for business owners, life insurance policies are crucial for risk mitigation.
Not only does life insurance ensure financial stability for your beneficiaries, life insurance policies can also be used to fund buy-sell agreements and estate planning, providing the necessary cash to buy out the departing owner's shares and ensure a smooth transition of ownership.
Estate planning: Estate planning can be complicated when it involves a business. Life insurance is also required as part of estate planning, as it can be an essential tool in mitigating the impact of estate taxes.
This would mean that in event of your death, your estate will have the funds necessary to make the equitable distribution of your assets. Through establishing a life insurance trust, the proceeds of your policy would be used to cover estate tax liabilities and thereby preserving your family's wealth. Death of one partner, or even divorce in a family business can add all kinds of additional strain.
Key person insurance: Key person insurance is about ensuring a person whose knowledge or particular services are instrumental to the running of the business. When a key person dies or becomes disabled, this can seriously impact a business’ ability to continue running. So making sure that key people are insured forms part of the overall succession planning strategy
Buy/sell agreements: A buy/sell agreement is a legally binding contract that stipulates how a person’s share of a business would be reassigned should they pass away or decide to leave this business. This is an important aspect of the succession plan, as it helps to ensure a smooth transition of ownership to the remaining business owners.
Failing to plan
As the saying goes, a failure to plan means planning for failure. Even if you’re not ready to think about letting go of the family business just yet, it is important to develop a comprehensive succession plan – and keep it up to date – for when the time does come.
Having a robust succession plan in place means that everyone involved with the business understands its direction, reduces financial risks for family members and ensures the business can continue to thrive even for generations to come.