So what should you do?
Succession planning starts by thinking about the various scenarios that could arise and planning how you would deal with them.
For example, one scenario might be that when you reach a certain age, you will hand over day-to-day control of the business to an existing team member while you stand back but retain ownership. Another option could be that a certain point a time, you pass over control of the business to a family member.
In each case, there are tax advantages to planning ahead. For example, depending on your circumstances you might be able to avail of Retirement relief or Entrepreneur relief. While it is beyond the scope of this article to discuss these in detail here, Brady & Associates would be pleased to help you work out what is best for your business. Contact us for details.
Choosing your successor
Just as tax is important when succession planning, choosing the right successor is also very important.
If you plan to pass the business over to a member of your existing team, you may decide to develop a group of individuals from whom your eventual successor will be chosen.
On the other hand, if your plan is to hand over to the next generation, you need to ensure that person is willing and able for the role. Remember that they are likely to need a period of training and mentoring before taking the reins.
In the scenarios outlined above, you may need to consider putting an interim manager in place until your eventual successor is ready to take charge.
Selling the business
Another option to consider is whether you might sell the business when you are ready to exit or if you receive an unexpected offer or find yourself in a merger situation.
In these scenarios, the more you build up your business in advance, the better the outcome will be. Remember that a potential purchaser will take your track record into account. Controlling costs and maximising profits now can help you achieve better value when you exit.
Depending on your circumstances, there will be other specific scenarios to consider in your succession plan. In all cases, the earlier you plan, the better. Finally, remember that circumstances change, so your succession plan should be reviewed and updated regularly. At the time of writing the standard rate of CAT for gifts and inheritances received on or after 6 December 2012 is 33%
Group A: €310,000
A son or daughter of the person giving the gift or inheritance (the disponer).
Group B: €32,500
A parent, brother, sister, niece, nephew or grandchild of the disponer.
Group C: €16,250
People with a relationship to the disponer not already covered in Groups A or B.
CAT is paid on the total of all the gifts or inheritances that you have received throughout your lifetime. The rules for how you add them are known as the aggregation rules.
For further information or advice, please contact Brady & Associates, specialist accountants and tax consultants based in the heart of Dublin City.