Handing your agency to family or staff? Agree the value before you agree the plan.

A succession valuation sets the market value of your agency, rent roll or client book when you plan to retire and pass it to family members, a long-serving employee or a management team. It gives everyone one independent figure for the price, for staged or vendor-financed payments, and for the tax rules that use market value on related-party transfers and gifts. The fee is set by the revenue of what is valued: $1,495 + GST under $2 million, delivered in 2 business days. Delivery time starts once payment and all required information have been received.

Why value an agency before a family or staff handover?

Succession deals are rarely negotiated between strangers. A parent may want to be fair to a child who works in the agency and a child who does not. A long-serving property manager or senior broker may want to buy but cannot pay the whole price on day one. A management team may need finance, and the lender will want to see a value.

An independent value takes the number out of the family or workplace relationship. It is prepared on a stated basis, at a stated date, from the agency's own records, and it can be shown to every person with a stake in the outcome. We value; your accountant, lawyer and financial adviser structure the handover.

What if the agency passes for less than it is worth?

You can choose the price you charge family or staff. Tax law may not follow it. Under section 116-30 of the Income Tax Assessment Act 1997, if you receive nothing for a CGT asset, such as when you give an agency to a child, you are taken to have received its market value. If you sell for more or less than market value and you and the buyer did not deal at arm's length, market value replaces the price.

The ATO's guidance on the small business retirement exemption gives an example of a business transferred to a son for no consideration, where the market value substitution rule set the capital proceeds at market value. In a succession, that makes a defensible market value as important as the price itself.

Which small business CGT concessions might apply on retirement?

Your tax adviser decides whether you qualify. In general terms, the ATO describes these features:

• ·15-year exemption: no CGT on an active asset you have continuously owned for 15 years, where you, or a significant individual for a company or trust, are 55 or older and the event is in connection with retirement, or are permanently incapacitated
• ·Retirement in connection with the exemption depends on the circumstances, and needs at least a significant reduction in hours worked or a significant change in activities
• ·Retirement exemption: capital gains from active assets may be disregarded up to a lifetime limit of $500,000 per individual; if you are under 55, the exempt amount is paid into a complying super fund or retirement savings account
• ·You do not have to stop working in the business to choose the retirement exemption
• ·To use any concession you first meet basic conditions, which can include the $6 million maximum net asset value test, worked out from the market values of CGT assets

How much of the agency's value stays when you step back?

In many agencies, clients deal with the principal. Landlords know the founder, insurance clients call the broker who has looked after them for years, and the biggest marketing client hired the agency because of its founder. When that person steps back, a hypothetical buyer would ask how much of the income stays.

Succession can answer that question better than an outside sale. If the successor already services the clients, or the handover runs over a period with the outgoing principal introducing the successor, more of the income is likely to stay. The valuation reflects the position at the valuation date, on evidence such as who services each client and how clients have behaved after earlier staff changes, and it states how dependence on you was treated.

How do staged handovers and vendor finance affect the valuation?

A staged handover may transfer shares or units over several years, with a value needed at each step. Each tranche can be valued at its own date, and the shareholders' agreement should say how later values are set. Vendor finance changes when you are paid, not what the agency is worth; the price and the payment terms are separate questions, and the report keeps them apart. Where some of the price depends on clients staying or on future results, see Earn-outs, retention clauses and clawbacks in agency deals. Where an employee is buying shares, see Valuing shares when you give equity to key staff.

What does a succession valuation cost?

The fee is fixed in writing before work starts. If the agency is held through more than one entity, such as an operating company and a family trust that holds its shares, each additional entity adds $795.

The band is set by the annual revenue, excluding GST, of what is being valued: a rent roll's annual management income when the rent roll is valued on its own, an insurance or mortgage book's annual recurring income when the book is valued on its own, or the agency's total annual turnover when the whole agency, or shares or units in it, are valued. A business on exactly $3 million is Medium, and one on exactly $10 million is Large. Add-ons: +$495 per retrospective (past) valuation date, and +$795 per additional entity. Delivery time starts once payment and all required information have been received.