"Family-owned businesses may account for four times the wealth of Australian Stock Exchange-listed companies…."
Quoted from an article by Mark Abernethy of Graham Connolly Family & Private Business Advisors Group.
These businesses are said to be the engine room of the economy. Yet three quarters of these businesses have no succession plans in place.
A succession plan is the process whereby the remaining co-owners acquire a deceased or seriously ill owner's share of a business.
It will ensure the business remains viable and healthy, even though one of the owners may not be healthy.
"Don't part with your dreams. When they are gone you may still exist, but you will have ceased to live." - Mark Twain
Consider the case where two business partners (Jack and Tom) run a successful business manufacturing pots. Tom has a heart attack and needs to retire early. He needs to sell his share of the business to fund his retirement and clear his debts. He wants Jack to buy his share. However, to fund the purchase Jack would either need to sell assets or approach the bank for a new business loan.
If Jack was unable to find the money, Tom would need to find an alternative buyer. Throughout this process the business would suffer from the loss of one of its partners and the distraction of the other. And still the tough questions remain. Is Jack able to purchase Tom's 50 per cent share, or will he need to form a new partnership with a buyer whom he does not know? Will Tom be able to find a willing buyer at all?
Consider the consequences of not having a succession plan:
- loss of control of the business
- the demise of the business
- a large increase in debt to enable continuation
- the stability of the business could be questioned by suppliers and creditors
- lending institutions could seek repayment of loan facilities
There are insurance policies specifically designed to guard business owners against these types of consequences. In the event of sickness or accident to one of the business owners, a succession planning insurance policy will provide the necessary funding to allow the remaining owners to purchase the leaving owner's shareholding.
A little bit of forward planning now can save a lot of heartache later.
To find out how DBT can help protect you, contact us today.
