It’s October, which sounds like it should be the eighth month, but it’s actually the tenth month – us accountants just love talking numbers!
In October we finalise many of your tax returns, and some lucky ducks may even find they get a refund from the ATO… Happy Days!
In Ballarat this month there looks to be loads of events targeting foodies and wine lovers, taking advantage of Spring weather and fresh produce. There are some delicious treats to be had around Torquay in October as well, like at the Strawberry Affair at the Great Ocean Road Chocolaterie and Ice Creamery, where they are celebrating locally grown strawberries and locally produced chocolates. As we all know, that fruit and confection are one of the great pairings of all time!
Many of our clients in Ballarat and Torquay are small, family owned and operated businesses. In these monthly posts, we regularly include subject matter of interest for our customers who are running small businesses. In this October bulletin we discuss some pertinent points relating to small business succession plans.
ATO PERSPECTIVE – SMALL BUSINESSES
The Australian Taxation Office (ATO) basically wants small businesses to thrive and prosper, where possible, as the sector is one of its best sources of income – millions of small businesses across the country busily gathering up GST and sending it on to the ATO every day – it’s a pretty efficient revenue system for the tax office. They want your small business to keep on keeping on.
The ATO knows that small businesses are a vital part of the massive engine which is the national economy. They do a lot of behind the scenes work to protect small businesses from the various potential harms which can be perpetrated by organised crime syndicates. The office has a powerful arm which spends all its time and has a lot of resources at its disposal countering criminal activity which threatens the structures and finances and longevity of small businesses.
In recent years, particularly with advances in technology, the ATO has made business literacy and skills, accurate lodging and reporting more straight forward in many ways. They will continue to try to make the complex system easier for small business owners to understand and they do endeavour to assist as best as they can with small business succession planning.
SMALL BUSINESSES AND SUCCESSION PLANS
Do you currently run a small family business? If so, do you have a succession plan in place? No, that’s not a plan for success (though we certainly hope you have one of those and that it’s working out nicely for you!), but a succession plan, which involves arrangements for passing your business on to someone else – like your children, or a business partner or employee – or, handing over your role in the business perhaps, when you retire from working.
Naturally you want your small business to keep kicking goals well into the future, but you may not to wish be full-time hands-on forever. You’ve worked hard for years; perhaps you started the business from nothing and worked seven days a week for years building it into a great little enterprise. But now it’s time to step back and take more time out from work – you’ve earned it! You may have a number of options, including passing on the business to your children, having somebody else take the helm or selling your share to a business partner or to another person or corporate entity. There may even be other possibilities.
Whatever the case, the best thing is if you are able to control the timing and the way in which you hand over the reins. You should put careful arrangements in place – contracts. You will need to involve your accountants and most likely seek legal advice also, although many accountants are capable of dealing with the legal side of such planning. Passing on the baton of your small business is your succession plan, and if you take the time to organise it carefully and it all goes smoothly, the outcome should be immensely satisfying.
However, life’s not always as obliging as the above scenario, is it. What happens if suddenly, out of the blue, the person you always thought you’d hand over to becomes incapacitated or unavailable for some or other reason? The best intentions can be decimated in one fell swoop by fate, as we know.
The best thing to do is to have a detailed succession plan which allows for a number of possible exit scenarios (told you we like talking numbers). Cover your bases. Just as you should have a Will prepared by a professional, you should have professionals prepare a formal business succession plan.
What should you be taking into consideration when making such a plan? For most people, that will mainly involve the question of Who. Who do you really think will be the best person to run, own, operate the business which you have poured you heart and soul into for many years? Should you automatically pass on the baton to your children? Statistics show that many businesses fail when handed on to second and especially third generations in a family. Not that we’re trying to put you off that idea; there’s nothing more impressive than a successful business which has been in the same family for a century. But these cases are actually rare.
You need somebody who has the same passion and commitment as you, to drive the business into the future. They need the right skills to run it, or they are willing to learn. You want to pass your business on to someone who loves it, the way you do.
This will probably be the most difficult decision to make, but there are several other arrangements you’ll need to put in place when drawing up a business succession plan. It is strongly recommended that you complete a business succession plan earlier rather than later. Selling a business can take years, for example. Teaching the right person everything they need to know could take a long time.
So, get started now. Our accountants at CGH Accounting Services are well versed in business succession planning. Or, you might already have one, but it’s woefully out of date and in fact, wouldn’t work any longer. We can help you make the necessary updates and adjustments. Our business is helping your business to run smoothly, and when the time comes to step back and/or pass it on, we want that process to run smoothly too. So talk to us now about developing or finessing your business plans for the future.
