Succession planning is important for both your business’ and family’s future but isn’t often thought about until retirement. But what happens to your successful farming business if something happens to you? What plans do you have in place and what does your succession plan look like? When is the right time to pass on assets, knowledge and skills? It’s important to start succession planning as early as you can so everyone involved knows what will happen and what is expected of them. Don’t be one of the 9 in 10 businesses which don’t have a succession plan in place.
A succession plan is simply the process where assets, knowledge and skills are transferred to the next generation. This process will include your family and can elicit strong emotions - who will run the farm or will it be sold if nobody wants to run it? The plan needs to be inclusive, outline how the transition process will take place, and be reflective of your wishes. It should be fair to everyone, agreed upon and updated if things change.
Informal discussions with family members prior to developing your succession plan can help prepare them for the transition. The needs and wants of the family and individual members can change over time, so it’s a good idea to be open, honest and transparent about everyone’s wishes. You’ll also want to consider where the business is at currently, and your vision for it. If you don’t wish to pass your farm onto your children, you should be upfront about this.
You should discuss your expectations for the future with your family and what the structure and obligations are for those who will take over. Consider getting a consensus so that the succession plan is inclusive, and is about how the business will continue on – it's not just the transference of assets but about the people and how to manage the business. You should also consider how viable the business is overall – it needs to give you the lifestyle you want and if it isn’t, you need to consider what your options are.
If one of more of your children want to run the farm either by themselves or together, this needs to be communicated clearly and also what they may need from the business. The earlier you know, the more you’re able to build the skills and capability in the next generation, and train them to take over the business from you. For those children who are not taking over the farm, it could mean providing some other financial support, such as with a home loan or a gift. You may also want to consider what (if any) sacrifice you make with regard to capital and security to help the next generation become established.
If no one wants to take over the farm business, consider partnering with other young people who are motivated and passionate about your business. Teach and upskill them with a view of passing the business on to them in the future.
It is important to receive specialised advice and reach out to someone with succession planning experience as well as involving your other advisors (lawyer, accountant etc) as they can help you clarify your vision for the business and put in place a strategy and structure to achieve this. Having a group of advisors who’ve been involved in your business for some time can make the transition much easier when it comes time to implement your succession plan, as they will know you and understand your business.
Things to consider are business profitability, business life cycle (good times and lean times). It may only have assets at the time of transition. Just looking at the accounts may not be enough but understanding the strategy and vision for the business gives a much better overview. You may have some hard decisions to make during the transition phase and your advisory group can be invaluable during this time. For example, the new generation will want to make their own changes but it can be sometimes harder than expected for the outgoing generation to hand over the reins, and the advisory group can look at it from a different (and objective) viewpoint.
Finding the best time to retire will be different for everyone but consider if it’s time to transition. If your business is anticipating growth, it might be a good time to transition to the next generation. Your experience and knowledge will always be valuable.
Succession planning can seem difficult but it is essential for the future of your business. If you haven’t already started, then the time is now, while the choice is yours.
BFA can help you with all aspects of succession planning, from identifying where you are at in the process, to helping you develop a plan for your farm business that is relevant to you, as well as providing assistance with the structure of the advisory board. Our focus will be delivered with the aim of providing transparency and fairness for you and your family.