No one goes through the work, risk and sacrifice of running a family business without optimistically thinking it’ll last. But when it’s time to pass on the family farming business, sometimes there’s uncertainty, which breeds confusion and conflict. However, through effective succession planning with your accountant, this can be avoided.
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What is succession planning?
Succession planning is about developing a plan for how a business will be passed on in the future. The purpose of a succession plan is to create peace of mind when it comes to the transfer of assets with the hopes of minimal discomfort to the parties involved.
As you would know, working with your family can be stressful but then throw in the potential ownership of the business and this causes even more conflict.
When it comes to businesses in the agriculture industry, often the new generation has different thoughts than the past ones. Also, when there are larger families and the business experiences growth, family members have different expectations about the ownership of assets and how much (or little) they want to be involved in the daily operations of the farm.
Succession planning and the agriculture industry
Our farmers are the backbone of regional Australia, with the agriculture supply chain supporting 1.6 million jobs. More than 99% of agribusinesses are wholly owned and most of these farms are family owned and operated. 1
Succession and planning for the future should start as early as possible, ideally at least five years prior to your retirement. There is a lot of work to be done, but with the help of your accountant, it can be done. Succession planning is vital to the success of your business, yet many family farms don’t have any plans in motion when it comes to this.
We’ve found that a lot of farmers don’t like to talk about succession and usually, that is due to fear of the unknown. It’s stressful trying to figure out how to give up the family home and something you’ve worked your whole life to grow. Often even talking about succession leads to stressful conversations and arguments with family members. That’s why it’s important to have a plan in place and to have mediators and facilitators present during this process. One thing is certain, it’s difficult to contemplate retirement if you don’t know where you’re going to live, and you don’t know what to do with yourself when you’re no longer farming.
During the succession planning process, all members of the family have an opportunity to express their opinion and address their expectations and fears. The hope is that the family can come to a common agreement after discussing what’s important to them and what their vision for the business is.
The consultant will first talk to each member individually and then with the family as a whole, to come up with a plan that works for all. They usually start with the parents and solve the “where am I going to live/what am I going to do with myself when I retire?” question. Then move on to the next generation and write down their hopes and aspirations – and try to combine everybody’s thoughts and opinions into an overarching plan.
It’s not a simple plan or discussion, that’s why it’s important to choose consultants that understand the different dynamics of the agriculture industry.
Why do you need a succession plan for your agribusiness?
Often overlooked in the farming industry is a well-built succession plan. While the conversations around succession planning can be awkward and uncomfortable, poor succession planning (or worse – no succession plan) can lead to relationship breakdowns and forced exits. A fully documented succession plan can minimise the hassles and uncertainty.
It’s important to note that succession planning is not something that happens overnight. Make sure you’re prepared for the full process to take up to 12 – 24 months. It’s also important to remember that the initial succession planning discussions shouldn’t be around “who gets what” but about the responsibilities of each member and what their role/involvement on and off the farm will be.
Even if you think you are still too far away to be thinking about retirement, if you have assets, it’s important you have a legally binding Will. This guarantees your assets will be inherited by the people you choose and that the handling of your estate follows your wishes.
Risks that can arise without a succession plan
It’s understandable that farmers have concerns when it comes to planning their exit strategy. We know negotiating the transfer price of the farm and making sure every family member is happy can be tricky. But doing nothing comes with its own problems.
If you pass away without an estate plan that mentions your succession plan, the first issue is that you leave your family without clarity. No one can honour your wishes and without a vision, other family members (especially those who move away from the farm) become less motivated.
Even if the planned handover of the farm to the next generation is years away, a properly documented succession plan – which has been discussed with all family members – helps mitigate relationship problems that could arise when family members are uncertain about their future. Family members may have different visions and expectations. It is important to communicate freely so that a consensus can be reached, thereby reducing conflict and poor decision making when it comes to assets and ownership of the business.
What to include in your succession plan
If you want to avoid leaving your family with questions, consider setting up a succession plan with the help of an accountant.
Every family farm is different, so no single solution or succession plan fits all. However, families who start their succession planning early, benefit from increased financial security, better family cooperation and increased motivation for the next generation.
When creating your succession plan, consider:
- What are the needs and desired outcomes for each family member?
- Which family members see themselves living/working on the farm?
- What do they want their role to be?
- For the non-farming children, what are their expectations?
- Does the successor have the necessary skills and experience to run the farm?
- If the successor doesn’t have the skills, what will happen? Will they hire external support or develop their own skills?
- What will happen if there is no willing family successor?
- If there’s more than one successor, will they be treated fairly? (this is especially important for families that have children both working and not working on the farm)
- What will your source of income during retirement be and does it include income from the farm?
- Outside of family, what are the key relationships (employees, suppliers, customers and advisers) needed to ensure the commercial aspects of the business?
Succession planning that works for everyone
No one knows what the future holds but something that you do know (and can control) is what you choose to leave behind. As agribusiness specialists, we work with you and your family to ensure you achieve optimal value on the sale of your business and minimise tax paid on the proceeds.
We know that for you (current owners of the farm), you’re looking for:
- A plan for what you will do once you give the farm over
- A steady and guaranteed income stream, and
- Something that can be agreed on and supported by all members of the family.
And we know that for your children, they’re looking for:
- A clear idea of what their responsibilities are
- A detailed timeline of the succession planning process
- Their interests are a priority, and
- Relief knowing that there is a plan in motion.
If you’re ready to create a succession plan for your family farm, or you’d like to update your current succession plan, our Accounting & Tax team are here to help. From beginning to end, our team ensures that all family members are included in the process.
Our team understand the specifics of the agriculture industry and has experience facilitating and helping family business and succession planning. We can also help with the tax side of things to make sure your plan takes this into consideration, and that you have a strategy to minimise your tax where possible.
Passionate about providing a holistic approach, we’ll make sure that your succession plan, estate plan and legal agreements all communicate the same outcome. Get in touch with our team today.
