Succession arrangements are an emotive subject for business owners. In the ideal scenario, succession arrangements can be made within their own family circle. This raises a number of questions: How will the younger family member finance the company? How will children who don't work for the business be compensated? And how will the owner finance his or her well-earned retirement? It’s important for owners to deal with these questions early on.
Usually, in the early days, business owners invest all of their money in the company – initially in order to actually finance the business, but later on for tax reasons. The business in many ways becomes their pension fund. Because of this, however, it is advisable to start thinking about a pension at some point, rather than investing solely in the company.
From age 50 at the latest, a business owner should start considering the future of his SME: Would he rather sell the company or pass it on to a family member?
If the owner wants to sell his company, he can continue investing a large portion of his money directly in it. This will work in his favour when he sells the SME.
If the owner would like to pass the company on to his son, for instance, he should plan well ahead. The earlier he decides on a pension solution, the more money he will amass for this later stage in his life. This might mean that the son doesn't have to pay his father the actual value of the business, or indeed might not pay anything, as the father is covered by his pension fund. Instead, siblings who are not involved in the company could be compensated after, say, 10 years, ensuring a satisfactory outcome for all the family members concerned.
The son should consider the following points when taking over the company and make informed decisions:
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