Succession planning is no different to other planning
To achieve a level of comfort around accepting the financial position imposed by any proposed plan, farm successors need to know exactly how addressing the identified wants of an exiting generation will impact their future viability.
As accountants, how we look at the ongoing viability of a farming business is all about projections and financial modelling, looking at likely future farm production, funding required for family living, “inherited” debt levels and the potential for comfortably servicing that debt.
As well as the financial wants of the exiting generation, in this analysis we also need to recognise that the so-called second-generation must consider their own future retirement funding and the potential for the funding of their own succession.
Accordingly, any plan under current consideration cannot leave the ongoing business with little or no capacity for future improvement in net financial position. Successive generations cannot viably continue taking on additional debt to fund subsequent successions.
This viability analysis needs to indicate, under any proposed succession arrangements, a future capacity to not just get by, but for ongoing operations to actually improve the financial position of the farming enterprise. The ability to build net assets either off-farm or alternatively through the acquisition of further farming assets, that are not integral to the core operation, and could ultimately be sold without a major financial impact, is a key ingredient if a next round of succession is to be attainable for subsequent generations.
Having financially quantified the wants of the exiting generation, identified the gap for bridging and established the possibility of an acceptable proposal to bridge that gap whilst upholding the future viability of farming operations, the next overlay of consideration must be the attainment of “Family Equity”.
In our next and final article, we will explore the different concepts surrounding “Family Equity” and its achievement. How it too must be factored into an analysis of ongoing viability by potential successors, along with the application of regulatory concessions in effective succession strategy development.
By proactively planning for the handover of your farm business and related assets, contemplating the future needs of family group members, borrowings and appropriate entities, be prepared for the unexpected when it happens and gain certainty for the next generation wanting to take over the family business. Wayne Turner understands the difficulty in starting those conversations and can have you and your family turn those into a positive and constructive succession planning process. Call Wayne on 07 4669 9800.
Copyright 2020. Carrick Aland Rural and Small Business Specialists. Dalby, Toowoomba, Chinchilla QLD