9 out of 10 businesses don’t have a succession plan in place. But what happens to your successful farming business if something happens to you? It’s important to start succession planning as early as you can to ensure your Balance Sheet is setup to be able to undertake the transition when the time comes.

How to Start – the 3 Rules

Succession planning will take you down several paths. It can become an emotional and confrontational process and eventually seem too hard. It doesn’t need to be. If everyone remembers the 3 rules, it can help keep you on track to keep the succession plan moving forward.

The 3 rules are:

• Mum and Dad’s interests, wishes and welfare always come first.
• Fair might not mean an equal division of assets.
• The family must remain a family post any succession plan implemented.

Who is your Successor

Informal discussions with family members prior to developing your succession plan can help with developing succession options.

If one of more of your children want to run the farm either by themselves or together, this needs to be communicated clearly. Working together can mean quicker Equity growth for the next generation. However, sometimes working together isn’t an option, so this stresses the importance of knowing what your children want so you can ensure all children are provided with equal opportunities, or the opportunity that you wish for them.

If no one in the family wants to take over the farm business, consider partnering with other key people in your existing business who are motivated and passionate about your 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.

The succession plan needs to be financially viable

The succession plan needs to be financially viable for all parties involved.

If the retiring generation are leaving money in the business for the next generation to take the step into farm ownership, how will the exiting generation fund their retirement?

Is the money being left in the business:

1. A Gift?
2. A loan with interest payments and loan payments?
3. A Shareholding in the business with dividend payments?
4. A combination of both?
5. Or something different?

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.  This discussion can elicit strong emotions, but it is key to ensure all parties agree. Afterall, you want to be able to sit around the table at Christmas together after the Succession Plan has been implemented.

Other key transferences in the succession plan

Is the next generation ready and capable of running the business successfully? If they aren’t, what can you do to help them?

The succession plan isn’t just about outlining the transference of assets, it should also include detail about the people, how to manage the business, and outline how the transition process will take place.

You want the next generation to be successful in the opportunity you are providing them. You also need them to be successful if you are relying on their business to provide you with future income.

All affected members need to be involved, and in consensus. 

What about your other children?

For those children who are not taking over the farm, it could mean providing other financial support, such as with a home loan or a gift. If you’re not financially able to provide support to your other children now, will they inherit their share of the loan left with the farming business?

Actioning the Succession Plan

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. Taking a look at not only the accounts but also the strategy and vision for the business will give a much better overview. For example, the new generation may 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. 

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.

Contact your Client Advisor or send us a message if you wish to discuss this further.