Succession planning doesn’t need to be the elephant in the room.
Communicating openly with each member of the family unit about their future and individual aspirations and plans can lead to successful stories of family farming transitions.
It would be remiss to think it is all beer and skittles. However, the conversation can be easier to have when you separate the labour component from the business ownership and land ownership.
Good human resource management is essential to ensure all members of the business feel safe, appropriately rewarded and likely to believe they have a future in the business.
One key quote from succession planning specialist Nigel McGuckian is to “manage labour as if you aren’t related – ensure there are clear roles, a safe workplace and clear communication,”
If your farm business is making a profit then succession is simpler. If the business is not profitable, ask yourself why would someone else want to run it?
A profitable business is one that can pay its labour (including family members), input costs and pay for land rent – then it is profitable.
Mr McGuckian continued “By definition, if a business can’t afford to reward people appropriately, pay an opportunity cost on capital, and reward risk appropriately, then can if afford to be in business?”
Businesses have to choice to either get profitable, lease or sell. Good business will have a 20% return on business assets.
Another important aspect in family succession planning is that if you gift assets, gift equally. That is, equal gifting to all family members is critical, both inside and outside of the farming business and those children on the farm.
And, if you want to gift assets, calculate what you need to earn for retirement.
Some other tools that work well in Mr McGuckian’s experience are writing a buy/sell agreement for transitioning in and out of the business, or, to start a farm advisory board with independent people, two to three is ideal in multi family farms.
One key recommendation from Mr McGuckian is to value the business including assets, stock and plant on 1 July each year so when members want to sell/buy into the farm business it has an -up-to-date value.
An example of a member transitioning into the business is the 18 year old farmer coming on as an employee for 10 years, then they buy in to the business, and then they buy a block of land and the business leases it of him/her.
Separating those three things (labour, business ownership and land ownership) makes things clear.
There is no need for great concern if your farming business isn’t currently achieving these things. There is a wealth of support and consultants available to help your business achieve these goals.
For more information on Nigel McGuckian’s approach to succession planning, read his 2018 GRDC Farm Business Update paper ‘Succession planning – start now‘.
