Succession Planning for Farming Families
Carrick Aland’s step-by-step guide to the succession planning process
The term ‘succession’ literally means to take over a role from someone or to succeed someone else in that role. It is not about staging a revolution or a coup!
Many farming families that proactively recognise business succession as an ongoing process continue to bathe in a glow of united achievement and satisfaction.
Having armed themselves with a well-considered planning framework and a willingness to confront personal challenges and possibly uncomfortable conversations, they achieve an almost seamless succession with minimal angst, family or business disruption.
Here we highlight the elements of a successful succession planning process which our team subscribes to in assisting farming families with this transition.
“Wayne Turner was instrumental in the good, harmonious results of our family’s succession planning exercise.” Read more »
|Family Meetings||Establishing the Wants
A series of individual and family “discovery meetings” are held in order to identify what family members really and honestly want from the future. Such meetings will also seek to bring to the forefront, individual concerns, desires and expectations of the succession process. Often there are surprises but, ultimately, once we know the “wants” we can set about addressing them.
A plan for succession can only be deemed successful if it adequately considers the needs of those to be succeeded. A plan that is actioned without establishing retirement needs is not a succession but potentially a financial sacrifice! Future financial independence and security is the goal to aim for, but what does that look like for the exiting parties and what will it take financially to achieve it?
Our specialist Financial Planners will meet with you to establish your retirement objectives, including living requirements, both essential and discretionary. From there consideration will be given to the capital required to meet these objectives, over the likely period of required future independence from the family farm.
|Retirement Funding||Assessment: Second Generation
With the potential for three generations to be considered today in a truly, forward-looking succession plan, a Retirement Funding Analysis is not only essential for those seeking to exit but also for the immediate successors that wish to be mindful of the expectations of the generation that follows.
|Age Care Funding||Assessment
For an exiting, older generation the question of potential future care required and the likely cost of such care, hangs heavy in the back of the mind. Having considered and addressed their independence in providing for future living requirements, establishing the likely magnitude of such future care costs, is essential when considering mechanisms designed to ensure dignity without financial burden.
Economics dictates that succession in a farming environment can rarely directly involve all family members of the next generation. Economics also dictates that farming successors require, what can often be viewed as, a “leg up” to ensure the successful continuation of farming/grazing activities into the future. At the same time older generations may seek to achieve equity in dealing with continuing farmers and their siblings.
A Family Equity Analysis seeks to take account of not only lifetime, transfers or gifts that are being considered as part of the succession plan but also past gifts and financial assistance and ultimately the intended distribution of assets via one’s estate. This process raises for consideration issues such as “earnings value vs market value’ and “fair vs equal” and not only assists in providing comfort in the context of achieving an individual’s concept of equity, but is also an effective tool in educating and conveying the reasoning to all family stakeholders.
Farm Succession is as much about the successful intergenerational transfer of control as it is about the transfer of livelihood generating assets. Consideration of both must be done in the context of existing business structures.
Understanding the ownership and control aspects of these structures as well as with whom, or what structure, family assets, debt and potential tax liabilities lie, is essential in determining a strategy that delivers control and assets to successors in the most effective manner.
Such an analysis also looks at the continuing appropriateness of existing structures for the next generation and considers future alternatives.
In order to get a complete understanding of these matters we will also work with your Lawyer to determine personal estate considerations, along with the appropriate mechanics and duty implications of possible structural change.
Succession planning is about achieving a balance between the future financial independence and security of exiting parties with the ongoing continuation of the farming enterprise. Often to achieve this balance, compromise is necessary. In financial terms such compromise may manifest itself in financial arrangements (eg commercial borrowing or leasing arrangements) that place an increased financial burden on the farming enterprise. Farm Successors need to know exactly how this may impact on future viability and be comfortable in accepting the financial position that any proposed plan will leave them in.
A plan that is actioned without considering future financial viability is not a succession but a leap of faith! To assist in providing such insight we will undertake several financial forecast scenarios designed to illustrate the impact of any proposed plan along with the influence of the many variables associated with the business of agriculture. Such scenarios can form the basis of finance applications and future performance monitoring.
A succession plan is not unlike any other plan. There are contingencies and unexpected events that must be considered and addressed where possible to ensure the preservation of a successor family’s financial means and business continuity. A personal risk assessment seeks to identify the potential life events that can derail even the most thoughtfully considered succession plan, providing financial arrangements as a “backstop” solution.
|Family Meeting/s||Strategy Development and Alignment
Having completed several specific assessments and analysis and sought the input of professionals such as Lawyers and Financial Planners, a facilitated meeting/s will address these findings and allow for consideration of individual objectives, discussion surrounding any differences in expectation and the development of possible strategies that aim to align all the parties. Ultimately, this is a process of seeking agreement on what can realistically be done and the timeframe over which it can be achieved.
|Family Meeting||Plan Presentation and Finalisation
Having gained agreement, at this point the family group commits to the common succession objectives to be achieved and the most advantageous strategy for all to do so. The documented plan is finalised with an action and implementation plan agreed to by all family stakeholders and professional parties.