Jan 25, 2024 / News

Business Succession / Succession Planning / Wine Industry

Succession planning – Ensuring the legacy of family-owned wineries

The wine industry, with its rich history and tradition, is often a family affair. Many vineyards and wineries have been passed down through generations, each adding their unique touch to the family legacy.

Navigating the transition from one generation to the next can be complex. Succession planning is a critical aspect of maintaining the longevity and success of all family businesses.

Here, we delve into the importance of succession planning and provide some practical steps to ensure a seamless transition of the family business to the next generation.

Communicating your succession plan

Communicating the succession plan and intentions of the owners prior to retirement or death is crucial to ensure business continuity despite the tendency to avoid such conversations.

The benefit of communicating your succession plan in advance is that it provides an opportunity to guide your children through the entire family wealth structure. Often, those inheriting the business understand the day-to-day operations but are not aware of the overall financial position and assets of the family group.

When the assets of a family group are not discussed in their entirety before the primary operator's death, it can create uncertainty for those who need to continue the family business.

This uncertainty often leads to family challenges about the rights to specific assets, the need to retain assets that support business operations, and the allocation of family assets to particular members. To avoid these situations, it’s important to have a conversation beforehand. This allows family members to understand the decisions made and allows those inheriting the assets or business to ask relevant questions.

Looking at family members' roles within the business

Another thing to consider when implementing a succession plan can stem from the various roles family members play in the family business. It is not always uncommon for one family member to work in the business full-time, assisting in its growth, whilst other family members take a different path. As a result, these family members don’t always have an active involvement within the business. This could result in a misunderstood ‘uneven split’ of the family wealth amongst the family.

Opening dialogue and having these conversations before death or retirement can significantly benefit your succession plan. Communicating early allows family members to understand the reasoning behind your decisions and ask questions when they feel changes can still be made. Having these discussions can assist in understanding the intentions of those who have historically not been involved in the business and identifying the timing of your exit from the business.

There are often instances where children have gone down a different path early on in their careers and later find themselves wanting to return to the family business. Understanding the intentions of family members is also helpful as it avoids any unspoken assumptions and creates clarity.

Ensuring clarity with family members

When having these conversations, it is often beneficial to have a third party present who can assist in keeping the discussion on track and provide assurance to family members that there is no favouritism affecting the outcome of the meeting. It’s also beneficial to prepare an agenda and summarise the agreed outcomes of the meeting. By recording the matters discussed and the final outcomes, any concerns later raised by family members are easily resolved by looking back at the meeting minutes.

Putting into action

After laying the groundwork to communicate the business's continuance and identifying key roles and responsibilities of family members, it’s important to get the wheels in motion now. But where do you start?

It’s always important to perform a stocktake of your business - not just in relation to your inventory. A proper financial review and analysis of your current business position and performance which you will need to take place.

It’s crucial that your accounts are up to date and show an accurate reflection of the business. This financial information can then be interpreted to answer the key question that most business owners want to know - what is my business worth? Seeking this valuation early can present several advantages, such as;

1. it allows further transparency amongst family members to establish what value is being passed on to them. The value of your business can influence family members' participation in its succession, which can also affect future staffing decisions, and
    
2. it allows enough time for key professional partners to plan and implement value-enhancing activities to maximise the business valuation for the future. For example, the eligibility and utilisation of CGT small business tax concessions could mean no tax is payable if business assets are sold or transferred to family members. This could otherwise be seen as a significant and succession discouraging cost if not properly planned for in advance.

While a financial stocktake of the business creates more certainty around the succession plan, it’s not always about the numbers. It’s important to anticipate other factors that could contribute to a business's successful transition. For instance, have any training or development areas been identified for the family members looking to transition the business into the future? We often focus on the strengths of individuals in a business. Still, it’s just as important to understand what further training may be necessary for family members (or other key staff) to drive the strategic growth and goals of the business. This ensures the business is equipped with strong leaders with well-rounded capabilities to be ready for what’s next.

Remembering to remain flexible

While sticking to a plan is important, adjusting if required is just as important. Consistent monitoring of your succession and business plan and assessing budgeted versus actual results provides vital feedback to your overall succession progress. When results are less desirable through regular reviews, it is important for a business to be agile and pivot if required. This kind of ability as a business to be flexible promotes innovation, growth, and success in the future.

Next steps

Whilst our experts are often thought of to provide financial advice, we also assist our clients by helping the family navigate the emotional aspects of succession planning.

Our most crucial role is to facilitate a smooth transition, ensuring not only the future of the business but, most importantly, preserving the harmony and unity of your family. We also assist in determining the value of the business, planning for tax implications and identifying opportunities within the business.

Speak with your local Nexia Edwards Marshall Advisor today to discuss your business succession plan or if you have any questions about the items discussed in this article.