Covid-19: Planning for the unexpected

With more than 25,000 confirmed cases of COVID-19, the pandemic has highlighted the fact that we never know when our time is up. It has never been more important than it is now to get your ‘ducks in a row’ to ease pressure on yourself, and your family, in the event of a business owner passing.

Planning for the future is always critical. In the following example, you will see the details of why.

John is 55 years of age. He is married with two adult children, owns a Financial Planning business, and he is looking to grow his net wealth over the next five years in order to reduce his working hours and enjoy the wealth that he has deservedly earned. Eventually, he will hand over the business to his family members.

As a financial planner, John knows all about income protection and other insurances. He knows how to protect himself and his family if the worst happens. However, from the perspective of being a workplace leader, advisor and mentor, John also needs to protect his business, employees, clients and his enduring legacy in the event he was to suddenly pass away or become incapacitated.

John’s family are not financial planners, his children are still at university and have not run a business before. They will also undoubtedly be under significant stress at such a difficult time. Therefore it is imperative that John has appropriate accounting supports. It would never be too soon for John to have the necessary discussions with his accountant to facilitate mapping out a proactive approach to his exit strategy, and, in the event of his unexpected passing, the longevity of his enduring legacy. In these COVID-19 times these steps maybe even more important.

The hard to have discussions regarding death and taxes is far too easy to delay and too easy to skim over lightly. However, with an accountant who asks the pertinent questions, John will be able to implement appropriate internal strategies. These will help to minimise potential family burdens and obtain the best outcomes for his employees and clients in the event of his passing.

Following are the most relevant questions to be asked if John was to suddenly die:

  • Who will run Johns business in a temporary capacity?
    Building an internal support team who share key managerial tasks which facilitate in the day to day business operations is imperative. The team would most likely be inclusive of John’s work managers and potentially his sons, who will have benefit greatly in facilitating in a temporary capacity. Ideally, John would mould his business around these pivotal people, ensuring the right team is built around key clients. Exploring who may assume temporary control of the business also identifies crucial team members, who may also be offered the opportunity to discuss the potential of buying equity in the business.
  • Who will be on hand to transition client relationships?
    Any of John’s employees who know the clients, such as a friendly receptionist, a paraplanner or an assistant, can make a big difference in a business handover. Consider how they can be supported during this time, but also prepared in advance, so that the best outcome is achieved for all and with as little stress as possible? Key staff should be made aware that their expertise and training will critical in any event, and steps should be in place to ensure initial consistency and continuance with the business administration (such as in areas like wages) so these qualified people can continue servicing your clients in your absence.
  • Who has the important details of the business, and structure?
    John will need his accountant, as his trusted adviser, to have an entity map and key information. This is essential, for these will be needed for meetings with his estate lawyer, and his family, in consideration that the most tax-effective ways to strip cash from a corporate structure can save issues down the track. As a temporary measure, the accountant, with the firms supporting resources, may take on temporary responsibilities such as business administration, completing pay runs, and preparing payments, all in order to ensure business continuity.
  • Who will help advise his family?
    Someone who can explain the process, likely time frames and outcomes, and take them through each step of the journey, will be a good advisor for the family. Business owners often find it useful to engage an external adviser, such as a lawyer, or someone not emotionally attached to the business, to be the point person. This person may be someone who can play ‘bad cop’ in a negotiation. Typically this will free up the accountant to focus on meeting compliance requirements and assisting in facilitating estate requests.
  • How will a sale or transfer of ownership occur?
    A good first step is for John to be able to meet with his accountant to discuss the process for and documentation of estate contracts, as well as shortlists in this regard. This way, John can have some comfort from the effort of those who will be helping his family. There are steps John can take now to have a working document for a future sale: an Information Memorandum that needs updating is still better than an Information Memorandum that is empty. Depending on the circumstances and client base, John’s business could then be marketed to a broker who could efficiently execute the transaction. This can be a lengthy process. Without the appropriate support in place, it can take more than 12 months to complete due diligence, agree on a terms sheet and settle.  

As John’s new trusted accountant and advisor, by facilitating a discussion around all of the above, the support team at Accru will be able to provide for him a level of comfort through the fact that his future and the future of his family are being protected.

Should you have any questions or need to speak with an Accru advisor, please contact your local office.

About the Author
Marcus Johnson , Accru Hobart
Marcus has been working with owners of small-to-medium sized businesses for the past 10 years and thoroughly enjoys playing an active role in helping to build client relationships whether it be through proactive tax planning measures or merely acting as a sounding board.
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