Coming to grips with succession planning

Clarke McEwan Accountants

With around 70 per cent of all Australian businesses being family-owned and operated, and an estimated $4.3 trillion of wealth locked up in these firms, having a succession plan to capitalise on this value when choosing to exit the business is crucial.

What exactly does 'succession planning' mean?

Business succession describes the process of a business owner transitioning out of the business. There are many different ways this can be achieved, which is why having a plan is essential to ensure the right option is chosen and that the relevant steps are taken to achieve a desirable outcome.

Why is it relevant to you as a business owner?

Building and running a business is hard work. So, it makes sense that when it comes time to exit, you would want to receive the best possible value for your efforts, and the best outcome for the business you have put your blood, sweat and tears into. For this reason, having a succession plan is so important for every business owner.

A succession plan allows a business owner to identify their company's opportunities for improvement and to scale, but also its impediments to growth, which might turn off prospective new owners and/or diminish the value of the business.

Additionally, developing and following a plan will allow you to minimise tax liabilities, plan ahead for life after the business (whatever that may entail) and ensure the transition – for yourself, your staff, your customers and the business itself – runs as smoothly as possible.

What are the different options for exiting a business?

There are a number of different paths owners can choose from when it comes time to exit their business. The most common ones are:

Sell the business: This is probably the most recognised form of exiting a business, allowing the owner to receive a lump sum payment for the asset they have built up.
Business merger: Similar to a sale, merging with a competitor can allow for one owner to hand over the reins to another, while simultaneously offering additional value to employees and customers.
Pass the business down (to children or other relatives): Many businesses retain family ownership over a number of generations, allowing owners to bring in new ideas and enthusiasm for younger generations without losing the family's connection to the business through a sale.
Employee or management buyout: It is possible for a buyer or group of buyers to come from within the business itself. This may involve a single or group of employees coming together to take over, or other directors, managers and board members buying out the share held by a co-owner.
Stock market listing: Many start-ups choose to embark on an IPO to take the business into public ownership once it reaches a certain size.
Shut the business down: The simplest and most final way of exiting a business is to simply shut the doors and cease trading.

What should business owners know about succession planning?

Many business owners – especially those without a succession plan in place – are often shocked at how long it can take to exit a business, and exactly what is involved.

For instance, business advisers generally suggest that it takes between 18 months to 2 years to properly prepare a business for sale.

This is primarily because of the amount of behind-the-scenes work required. New owners, whether buyers, merger prospects or buyout parties, will want to see evidence of the company's performance, levels of debt, revenue structure, productivity, staffing levels and turnover rates, supply agreements, customer contracts and more.

In addition, they want the business owner to effectively provide a "brain dump" of everything they know about the business to ensure a smooth transition into operating under new management. This includes operational procedures and process, passwords, relevant contact lists as well as ideas and opportunities to further scale and grow the business.

Having this process clearly documented will substantially increase the level of interest from prospective buyers, and how much they are ultimately willing to pay for the business.

It is also important for suppliers and customers to have confidence in any change in management or ownership. The sudden and seemingly unplanned exit of a business owner can lead both suppliers and customers to question the viability of the business, taking their custom elsewhere.

Business owners should also be aware that their company may hold more assets or value than they realise. For instance, some services firms wrongly believe that without the owner, there is no business. However, their customer base, for example, could be of substantial monetary value to competitors or other parties.

Finally, it is important to note that a business owner will generally be required to continue working within the business for a period of time (generally six to 12 months) to ensure a smooth transition to the new owners. A portion of the sale price is sometimes tied to this requirement being met.

What happens if there is no plan in place?

After spending years or even decades building up a successful business, no one wants to go out on a sour note. While the lack of a succession plan doesn't guarantee failure, there are some definite risks that a company without a plan may face, such as:

- Accepting a lower offer for the business and/or its assets than what they are really worth.
- Limiting the number of interested parties that the business may otherwise have attracted.
- Scaring off a key customer who gets spooked by the unknown implications of the transition, in turn destroying cash flow and goodwill.
- Discovering that the preferred exit option is unavailable. Sadly, this a growing problem for many business owners who aspire to pass it onto their children, only to discover the next generation either can't afford or have no desire to take
over the business.
- Being forced to delay retirement in order to generate the desired returns from the business.

Case study: Tom and Mary

Tom and Mary have run a successful printing supplies business for over 20 years and are now approaching retirement. They worked hard to build up the business from scratch and built a highly loyal customer base.

As such, Mary and Tom want to see these customers continue to receive the trusted service to which they are accustomed, and for the business to continue growing once it moves to new management. They would have liked their dedicated employees to take over and continue running the business, rather than sell out to an unknown party, but were concerned about the financial and logistical viability of this option.

In a bid to explore their options in more detail and receive bespoke advice on how best to manage their eventual exit from the business, Tom and Mary decided to work with an external consultant familiar with succession planning.

Using the advice of their business consultant, Mary and Tom have been able to overcome their initial fears and begin the process of transferring ownership of the business to their staff. Consultations have determined which employees will be involved in the buyout and how much each will contribute, allowing each member of staff to begin exploring their own options to finance the purchase.

Major customers have been thrilled with the news they will continue to be dealing with the same people they know and trust, and Tom and Mary are now at ease that their legacy and customers will continue to operate in good hands.

#businessplanning #successionplanning #retirement #businesssuccession #planning #exitplan #goodwill #clarkemcewan #businesstransition

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The one big, beautiful bill that may not be so beautiful for Aussies

By Clarke McEwan • July 2, 2025

Where are things at? Australian superannuation funds currently have about $400 billion invested in the US and tax concessions are currently available under existing tax treaties. This could change. A new bill, backed by the Trump administration and recently passed through the House of Representatives proposes higher taxes on countries seen to be discriminating against US businesses, including Australia. If the bill becomes law, Australian super funds could face higher taxes on US investments, directly affecting the long-term returns of super funds. The implications Even if you don’t have direct investments in the US, this matters. If your business is tied to superannuation funds or if you rely on consistent super returns for your retirement planning, changes like these can add pressure. It also adds a layer of uncertainty for Aussie businesses operating globally. As trade tensions rise and tax rules shift, doing business internationally becomes more complex and potentially more costly. Tax experts say these changes could override existing treaties between the US and Australia. And they’re not just aimed at big corporates, any individual or entity with US exposure could potentially be affected in some way. What’s being done? Industry groups including the Financial Services Council are calling on the Australian Government to step in and protect Australian investors through diplomatic and trade channels. Major super funds have already met with US lawmakers, reminding them that Australia is a significant source of capital for US markets and that strong partnerships go both ways. That said, this legislation is still working its way through Congress and faces pushback even from some Republicans. But as one US political expert said, ‘Bills that looked doomed have passed before.’ We live in hope but it’s not over yet. What can you do? Using John Howard’s barometer, for now we’re at the be alert but not alarmed stage. If you’re managing a business, planning your retirement, or investing overseas, this is a reminder of how global politics can impact your bottom line. Here’s what we recommend: • Stay informed. Tax rules can change quickly • Ensure your retirement planning is flexible enough to adjust if needed or talk to us to help you • Talk to us if you’ve got exposure to US investments, but you might need some input from a US tax specialist. There’s undoubtedly a bit to consider in the world of tax / finance at the moment, the environment’s changing at pace. You’re not alone in this though, as always please reach out if you have any questions and concerns. We’re here to help.

Trust funds: are they still worth the effort?

By Clarke McEwan • July 2, 2025

Is there a shift away from trusts? In recent years, we have noticed a slight trend of businesses transitioning from trust structures to corporate entities. This shift is largely due to increasing scrutiny on how trusts are used and the growing complexities involved in managing trusts, particularly when it comes to documentation and compliance requirements. Trustees and directors of trustee companies are realising that they need to devote more time and resources to ensure compliance with evolving and complex regulations. One of the primary challenges in utilising trusts for business purposes is the need for timely and accurate decision making. Trustees are normally required to make decisions about distributions by the end of the financial year to prevent the profits of the trust from being taxed at penalty rates. This timing can be problematic as it might not align with the availability of complete financial information, especially for businesses that are actively trading. This can lead to difficulties in making informed decisions regarding the distribution of trust income and to achieve optimal tax outcomes. The ATO has also intensified its focus on trust arrangements, especially when it comes to the use of integrity rules which have formed part of the tax system for many years, but haven’t tended to be applied all that often. The risk of making mistakes and being detected is probably higher than ever before. All’s not lost (we’re here to help) While the landscape around trusts is evolving and the scrutiny is high, this doesn’t mean that trust structures don’t still have their place. With the right support (support that we can provide in conjunction with other experts) trusts can still offer advantages that other structures can’t. They can still be a useful platform for passive investment activities, estate planning and as part of a business structure. This isn’t the time to give up on trusts. But it is important to seek advice before setting up a trust to make sure it is the most appropriate option and to fully understand the advantages, disadvantages and practical issues that will need to be managed when using a trust structure.

Finfluencers: bad tax advice could cost you

By Clarke McEwan • July 2, 2025

Finfluencers: bad tax advice could cost you Relying on this advice could not only leave you out of pocket but also expose you to ATO penalties, fines or in the worst case scenario - prosecution. What’s the problem? Many finfluencers make money by promoting financial products on behalf of companies, which means that they don’t necessarily have your best interests in mind when sharing information or insights. Finfluencers aren’t always qualified to provide advice on tax or financial products. You just can’t expect to receive solid, reliable or tailored guidance. Unfortunately, we’re seeing some influences share tax hacks that are either completely false or apply only in extremely limited situations. The ATO and some of the accounting professional bodies have sounded the alarm on some recent false claims, including: • Claiming your pet as a work related guard dog • Writing off luxury handbags as laptop bags • Deducting fuel costs without any documentation • Trying to claim swimwear as a work uniform These kinds of suggestions might sound plausible but following them could get you into serious trouble. The ATO uses sophisticated data matching tools to detect suspicious or inflated claims. If your deductions don’t meet the legal criteria, this could trigger an audit and if mistakes are found, the consequences can include: • An increased tax liability • Interest charges • Fines • A criminal record and in the most serious cases, imprisonment. Here’s how to stay safe and tax smart: • If it sounds too good to be true, it probably is. Dodgy deduction tips on social media are best ignored, at least until they can be verified. • Stick to trusted sources. For official tax guidance, visit ato.gov.au. • Don’t risk your business or personal reputation for a quick deduction. If you aren’t sure, please reach out to us and we can help you stay compliant, no filters or hashtags!

Important tax update: deductions for ATO interest charges scrapped

By Clarke McEwan • July 2, 2025

What are the interest charges? There are two main types of interest that are charged by the ATO. These are: • General Interest Charge (GIC) : This applies when you pay your tax liability late. The ATO applies GIC to encourage tax liabilities to be paid on time and ensure taxpayers who pay late don’t have an unfair advantage over taxpayers who pay on time. GIC is calculated on a daily compounding basis on the overdue amount. The GIC annual rate for the July – September 2025 quarter is 10.78%. • Shortfall Interest Charge (SIC) : This is applied when there is a shortfall in tax paid because of an amendment or correction to your tax assessment. SIC is also calculated on a daily compounding basis. The SIC annual rate for the July – September 2025 quarter is 6.78%. The ATO applies SIC to the tax shortfall amount for the period between when it would have been due and when the assessment is corrected. What’s changing? Historically, both GIC and SIC amounts could be claimed as a deduction. This has meant that the net after-tax cost of the interest charges has been reduced for taxpayers who have a positive income tax liability for the relevant income year. However, the Government has passed legislation to ensure that GIC and SIC amounts incurred on or after 1 July 2025 are no longer deductible, even if the interest relates to a tax debt that arose before this date. As these interest charges are no longer deductible, this means that the after-tax impact of the charges is higher for many taxpayers. The impact becomes greater as your tax rate increases. For example, let’s take a look at two individuals who have the same level of tax debt owed to the ATO and the same level of tax debt owed to the ATO and the same GIC liability of $1,000 for a particular income year: • Sally is a high income earner and subject to a 45% marginal tax rate (ignoring the Medicare levy). Under the old rules the net cost of the interest charge was only $550 because she could claim a deduction for the GIC amount and this reduced her income tax liability by $450. Under the new rules no deduction is available and the full cost to Sally will be $1,000. • Adam is subject to a 30% marginal tax rate (again, ignoring the Medicare levy). Under the old rules the net cost of the interest charge was $700 because he could reduce his income tax liability by $300 by claiming a deduction for the GIC amount. As with Sally, under the new rules no deduction is available for the GIC and the full cost to Adam is $1,000. What can I do to minimise the impact of this change? The simple answer is to pay down ATO debt as quickly as possible. As you can see, the GIC rate is relatively high and continues to accrue on a daily basis until the debt is paid off. The faster you can pay off that debt, the lower the interest charges that will accrue. If you can’t afford to pay off your ATO debt in the short term then you might want to explore other options, including whether you would be better off borrowing money from another source at a lower interest rate to pay off the ATO debt. In some cases it is possible to claim a deduction for interest accruing on a loan that is used to pay tax debts, although this is normally only possible if the debt arose from business activities. It isn’t normally possible to claim a deduction for interest accruing on a loan that is used to pay a tax debt that arose from investment or employment activities. While the ATO will sometimes allow taxpayers to enter into a payment plan so that tax debts can be paid through instalments, tax debts that are subject to a payment plan still accrue GIC. On a more proactive basis, a better option is to plan ahead to ensure that upcoming tax payments can be made on time. This will sometimes mean setting aside funds regularly for tax instalments, GST, PAYG withholding and other amounts that need to be paid to the ATO. Keeping these amounts separate will help to ensure you’re ready when the ATO bill arrives. If you're currently carrying tax debt or need help staying ahead of your obligations, we're here to help. Let’s work together on a strategy that keeps you compliant and protects your bottom line.

Div 296 super tax and practical things to consider

By Clarke McEwan • July 2, 2025

How does it work? While we are waiting to see whether the measure will become law, let’s assume for the moment that the Government passes legislation which is consistent with the Government’s announcements to date. If so: • If your TSB is over $3 million at 30 June, a portion of your annual superannuation earnings above that threshold will be taxed at an additional 15%. • The tax is assessed to you personally and can be paid from your super or your own funds. • Superannuation earnings for this purpose reflect the increase in your net super balance for the year, adjusted for certain contributions (eg, inheritance via death benefit pension) and withdrawals. • Some exclusions apply: children on super pensions, structured settlements (personal injury), and the deceased. It is important to remember that your TSB is the aggregate of all Australian superannuation interests (including balances with APRA funds, SMSFs and defined benefit schemes) held at the end of the income year. If the start date is 1 July 2025, then the first test date will be 30 June 2026. An individual’s TSB at this date, and each following 30 June, will determine whether they will have a Division 296 tax liability for that income year. Only where the individual has a TSB on 30 June in excess of $3 million will they have a Division 296 tax liability for that income year. Examples Sam’s account • 30 June super balance: $4 million. • Annual growth: $120,000. • Portion above $3m: ($4m–$3m)/$4m = 25% • Taxable earnings: $120,000 x 25% = $30,000 • Extra tax: $30,000 x 15% = $4,500 Lisa’s inheritance • Lisa’s balance rises from $2m to $4.5m after receiving a death benefit pension. • Only new investment growth (not the transferred amount) is taxed as earnings, but a total balance over $3m means she may still have a liability. What can you do? • Review your super fund liquidity and cashflow planning for future tax payments • Ensure your asset valuations are up to date • Estimate your combined super balances and plan for any large transactions • Document asset values, especially for SMSF members • Seek tailored professional advice before making any changes While we are waiting to see whether the legislation passes through Parliament and whether any significant amendments or adjustments are made to the proposed measures, if you have any questions or concerns around this in the meantime, reach out – we’re here to help.

Leveraging Xero for Medical Practices: The Importance of Monthly Bank Reconciliation

By Clarke McEwan • June 12, 2025

Leveraging Xero for Medical Practices: The Importance of Monthly Bank Reconciliation In the evolving world of financial management, the use of cloud-based accounting software like Xero has transformed how businesses, including medical practices, handle their finances. For healthcare providers in Australia, maintaining accurate financial records is crucial, not only for compliance but also for ensuring business efficiency and growth. One of the fundamental accounting processes that support this is regular bank reconciliation. Why Choose Xero for Your Medical Practice? Xero is a user-friendly, cloud-based accounting software designed to simplify day-to-day financial operations. Here are some key reasons why medical practices are increasingly adopting Xero: Streamlined Billing and Invoicing : Xero allows for easy creation and management of invoices, ensuring that patients are billed correctly and efficiently. Real-Time Financial Overview : With Xero, you can access your financial data anytime, anywhere, providing you with a real-time snapshot of your practice's financial health. Integration with Other Systems : Xero integrates seamlessly with a plethora of healthcare management systems, reducing manual data entry and enabling smooth workflow. Efficient Payroll Handling : Automate payroll processing within your practice, helping you manage employee payments and relevant compliance efficiently. The Significance of Regular Bank Reconciliation Bank reconciliation is the process of aligning the records in your practice's accounting system with the corresponding information on your bank statement to ensure both sets of records are accurate. Here’s why doing this every month is vital: 1. Error Detection and Correction Bank reconciliation allows you to spot any discrepancies between your records and the bank's data. This includes identifying double payments, missed transactions, or bank errors that could cost your practice a significant amount if left unchecked. 2. Fraud Prevention By regularly reconciling your accounts, you create an opportunity to detect early signs of fraudulent activity or unauthorized transactions, safeguarding your practice’s funds. 3. Cash Flow Management Accurate reconciliation ensures that your cash flow statement reflects the true financial state of your practice, helping you plan for any financial commitments and investments with confidence. 4. Compliance and Reporting Regular reconciliation ensures your financial statements are accurate, facilitating smoother tax filing and adherence to Australian financial regulations. 5. Financial Decision-Making When reconciled correctly, your financial data becomes a reliable foundation for making strategic business decisions, such as expanding your practice or acquiring new equipment. Incorporating Xero into Your Routine To maximize the benefits of Xero for your medical practice: Schedule Monthly Reconciliation : Set aside dedicated time each month to complete your bank reconciliations without fail. Leverage Automation : Use Xero’s bank feeds to automate transaction imports, which makes the matching and reconciliation process quicker and more efficient. Stay Informed : Regularly review reports generated by Xero to keep abreast of your practice’s financial performance and trends. Consult with Professionals : Collaborate with your accountant or financial advisor to ensure that your reconciliation processes are optimized and aligned with best practices. In conclusion, adopting Xero and maintaining regular bank reconciliations in your medical practice are not merely about staying compliant; they are essential components of robust financial management. They ensure your practice operates smoothly and is prepared for growth, making them indispensable tools in today’s healthcare landscape. Discover how our accounting services can further enhance your financial management processes. Get in touch with us today for tailored solutions to meet the unique needs of your medical practice. To arrange a no obligation meeting please use the link here