Getting started with farm succession
"What you leave behind is not engraved in stone monuments, but what is woven into the lives of others." - Pericles
Succession planning is a process a family takes to smoothly transition a family business.
It’s a complex thing in any business, but particularly so in agribusiness. It is a plan that will span many years. In many cases it is already in motion - parents often worry if their children can manage modern-day farm debt levels AND live on the farm. Parents also think about their children who have chosen careers off-farm.
With so many elements in succession - families, banks, financial advisors, as well as navigating the stamp duty and tax aspects - it can be hard to know how to start, and who to start with.
These guidelines are what we use in our initial conversations when clients want to start succession planning with C.O.Booth Law & Advisory.
1. Focus on the parents
Couples in their 50’s, 60’s and 70’s can be reluctant to start conversations around succession - mainly because the word ‘retirement’ can be terrifying.
For many farmers, farming isn’t just a job, it’s everything.
There can be a perception that succession planning is all about children returning to the farm. This leaves parents worried about the changes that flow from blending generations in a family business. I often have clients tell me that they feel they might be cut off from their home (and garden!) of many years, as well as the business they have built or grown.
With clients, I always start with a 1 hour meeting for a general chat about where things are today, and what the future might look like.
In this conversation, I focus on the needs of the parents. They have worked very hard, and we need to look after them in whatever they choose to do next.
It is very common for a couple to not have discussed their expectations about retirement with each other, so we start there. It is so much easier to progress when a couple has a shared vision for their future first, before we bring in the next generation.
2. Start with one thing
When I first meet with clients the challenges are usually any combination of:
Unease about the unknown (they have often heard horror stories),
Communication between family members,
Uncertainty around the taxation of assets,
Funding retirement, or
Servicing any debt (for the incoming farmers).
Sometimes, it’s all of these issues rolled together.
When you first start, succession can feel like untangling the fairy lights at Christmas.
After an initial meeting with clients, I usually set them one task. We then meet one month later.
I find when people focus on one thing at a time, it’s easier to maintain interest and momentum. Trying to manage tax, cashflow, Wills, communication, everyone’s expectations and the rest all at once is a recipe for disaster.
Especially because there is often an emotional element to all of this - it can all get very messy. People get overwhelmed, and then avoid the whole thing.
3. Create the “to-do list”
Transferring land, farm assets, and debt is only one part of the succession puzzle.
The bigger question is transferring decision making processes, asking the question “Who are the main decision makers and who shoulders the risk over time?”. If there are more than one decision maker - do we have roles and responsibilities? Accountability? Clarity?
Clear is kind when it comes to who does what, how and when.
Having an agenda, outlining what must happen, which adviser is needed and who makes what decision - is critical. Often, children don’t mind about the “when”, they just want to know what is happening, and how.
4. Plan a 2 year trial
In many cases, working through a succession plan doesn’t mean that your day-to-day life needs to change. You can retain assets if that’s important to you and tax effective.
Instead, we’ll begin to talk about how to hand over decision making processes.
Too often, succession plans forget this real, human aspect. There is a major transfer of knowledge - and confidence to act on that knowledge - that needs to happen, for a farm business to continue to run successfully.
This can start with a partnership* arrangement as a 2 year trial.
During that time, all family members are involved in both farming decision making and financial meetings.
After the trial, you can review the plan to understand if it’s still working for everyone.
We ask our clients:
What worked well?
What could have been better?
Are you ready for the next stage?
If our clients are ready we can begin the formal process of handing over legal title and control. Note: it is important to make sure your Will/s are current and consider any trial partnership process.
*Or another type of structure such as a company or trust.
5. Share your life’s work (YOUR knowledge)
Farming businesses have balance sheets which outline land and water assets, plant and equipment and livestock.
The most valuable asset on a balance sheet is actually the knowledge of the people who know the land. Why is one paddock sown to lucerne? Why is it that new season lambs go there? Families who share this type of operational knowledge, are more successful and enjoy smoother succession processes.
6. Think about your bank
Families who have enjoyed a relatively smooth succession processes often have the following qualities. They:
Understand the numbers of their business.
Maintain ‘budget to actual’ processes (and basically keep themselves accountable).
Regularly plan business activities.
Great succession processes are welcomed by banks who reward those clients with cheaper debt pricing and better access to capital. This means those clients quickly act on opportunities when presented.
Succession processes are still very taboo. They are a private process that each family walks in their own special way.
My professional opinion is a strong succession plan is built on:
Courage and patience.
Taking one thing at a time.
Conversations.
Knowledge sharing.
Technical advice (tax, financial planning, insurance and legal matters).
If you are ready to start talking about succession planning, our calendars are opening to new clients from February 2023. Call 02 6882 2625 or email admin@boothlaw.com.au to make an appointment.