When the time comes to hand over the reins of the family farm to the next generation, careful planning and patience is required to ensure a smooth transition.
All too often poor succession planning can lead to disputes, family feuds and the breakdown of a farming operation that has lasted generations.
Plan, and plan early
When do you want to retire? How would you like to retire? Would you like to pass the business on to the next generation or are you considering putting it up for sale? Who within the family is most suited to running the farm when you retire?
These are the types of questions you should be asking yourself when thinking about the future of the farm. Establishing a clear plan as early as possible will assist in long-term decision making for the farming enterprise and lessen the risk of disputes or disappointment when the time comes.
Establish a pecking order
Family dynamics are by far the most influential factor in the daily management of family owned rural businesses. There are differences in attitudes towards each other and towards the businesses itself and usually differences in opinion about how the business should operate.
Combined with this are differences in age, experience and mindset. For example, the younger generation is more likely to push the use of new technology or farming techniques and this can be met with resistance from older members of the family.
It’s vital that families have a clear decision-making hierarchy, well understood roles and responsibilities and there is clear and regular communication. Failure to report news – good or bad – can have damaging effects. It is also important to determine how high the business ranks in importance for all members of the family. Is it family first, business second, or vice-versa?
An understanding of your family dynamics and attitude will enable a better outcome when making decisions on the future of the farm.
Maintain fairness and equity
When it comes to succession planning, tension can arise when the next generation feels that distribution of assets or responsibility has not been addressed fairly.
One sibling may feel as though they work harder than the rest, or that a sibling with an affinity to farming might be ‘better off’ due to the higher value of farming assets over non-farm assets. Careful consideration is required to ensure the allocation of assets is fair and equitable.
It is also important to identify the strengths of family members and assign them to complementary roles. If the right skills can’t be sourced from within the family, they may need to be sourced externally. Management positions also shouldn’t necessarily fall to family members destined to inherit the business. If those skills don’t exist within the family, it may be wiser for the security of the business to seek them externally.
Does your plan make financial sense?
A major consideration for farm business owners is to consider whether their succession plans are financially viable.
The desire might be to hand over the reins to the next generation, but a farm might only be able to support one family and if multiple siblings are involved, this has the potential to put stress on family relationships.
It’s also important to consider the structure of the business and the financial implications such as who will own each asset and the impact of capital gains tax or transfer costs if assets were passed on.
In addition, rural businesses and, in particular, farms, can also suffer from low returns resulting from difficult seasons. It’s important that this is factored into the financial viability of passing the business on to future generations.
Third party advice
Seeking independent advice regarding future plans and operating structure is always a sensible idea. Not only will these provide guidance from a financial perspective, but regular meetings facilitated by a third party can provide an objective viewpoint free from the influence of family dynamics.