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Agriculture is back on trend- let’s talk succession.
9 August 2019
Let's talk succession
Succession can be defined as, ‘a process by which individuals are scanned to pass on the leadership role within a company’. The process ensures that the business continues to operate efficiently without the presence of people who were once holding key positions as they must have retired or resigned for example.
‘Succession Planning’ is on trend at the moment, and simply the way I see it as a generalization agriculture as a whole industry is pretty good, some would say the best they have seen it. Protein markets are sizzling (excuse the pun!) wool & grain prices are well above the 10-year average & it is an exciting time to be in the heart of agriculture. Naturally when things are going well it is encouraging for those with an agricultural bent, people want to be in it, do it & let’s be honest if you are a farmer breath through it!
In the last five years I think we have seen a turnaround, those returning to the family farm or choosing careers in agriculture no longer declining. The conversations around succession planning are continuing to become more and more because people can see a viable future.
We think that is important to remember you don’t have to take the linear approach with succession. Say for example, you don’t have any children of your own or perhaps your children aren’t interested in taking on the family business, but you are not ready to just sell it up to who ever wants to pay the highest price. We find that most farmers who are having trouble letting things go on the farm are usually the most passionate, they have worked hard their whole life to have what they do now & they are usually people that want to pass on their knowledge to someone; and there are people actively looking for transition opportunities. Whether or not your succession plan will be the more traditional family style or choose a different transition opportunity the crucial elements to consider in this situation are very much the same.
What things should be considered when talking succession planning for all farming businesses:
- Identification of those to be involved & role definitions
- Property Identification & landholding specifics (owners, date of purchase ect)
- Identification and review of most suitable business structure & setup
- Responsibility & treatment of income & expenses
- Responsibility & treatment of profit or share dividends
- Decision making responsibility for purchasing capital requirements (equipment or land)
- Reporting & performance reviews
- Exit Strategy & requirements for this (termination)
We like to remind our clients when we undertake succession planning it’s not a one step process, we like to break it down into three key areas:
- Management &/or control transition
- Business ownership transition
- Asset & liability ownership transition
Each of these steps can be completed over a period of time, there is nothing to say that these thre areas to be completed at once, we normally recommend a three staged process as it allows for people to work through the transition gradually and to before comfortable with each stage.
Common Mistakes
Assumptions:
It’s often quite funny that people assume what other family members want and sometimes when you actually take the opportunity to listen to each person it may be different to what you thought- this is step one; get a clear understanding of what each individual involved actually wants. You may be surprised just because your siblings aren’t interested in the day to day running of the business, they may have an emotional attachment to the farm; they may not want their share of pie in cash if they realise the farm can’t survive that capital outlay- they may be happy as silent share holder.
It has to be Equal:
If you start with the idea that your succession plan should be equal amongst the successors things get difficult, we prefer to look at what is fair- has one person been involved in the family business for a longer period of time and given up other opportunities or taken a reduced income for a period of time?
Succession isn’t completed by one person:
Succession is a team approach- there so many different elements. Make sure that you are comfortable with the team you assemble. For example, we would recommend you include, an accountant, solicitor, bank manager, mediator. It is important for these purposes to not have someone that sits to ‘one-sided’ – get a team together that everyone is comfortable with not someone with an individual’s best interests at the centre. A good outcome is when everyone is a little unhappy; it means that things haven’t gone too much one person’s way.
Succession planning success is determined by setting a clearly defined mutual objective by those that are involved in the process at the beginning. It should be remembered that succession planning is a process not a job so works through each part of the process- don’t be in a rush. And remember a succession plan can be reviewed and so it should be as we know that circumstances change.
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