Succession planning is the same as other planning
Where the business is currently situated, those who hold a stake in the outcome need to be thoroughly investigated and determined early.
In our first article of this series, we focused on recognising the need for and encouraging early engagement in the succession process. But where to start?
What are the Wants?
Within a structured framework we refer to this first step as “Establishing the Wants”. This highly important foundation step involves embarking on a series of individual and family “discovery meetings”. Designed and facilitated to identify what family members really and honestly want from the future, such meetings also seek to bring to the forefront, individual concerns, and expectations of the succession process.
Often there are surprises but, ultimately, once we know the “wants” of all stakeholders we can set about building a strategy for best addressing them.
Having established a list of “wants” and a commitment from all to the common goal of recognising and endeavouring to, where possible, meet those individual wants, an order of priority needs to be recognised.
For someone to step back or step out from the farm, they need to have the financial security to do so.
First and foremost, establishing financial security for the exiting and, in many cases, the older generation, must be the top priority. A plan that is actioned without establishing “retirement” needs is not a succession plan but potentially a plan of 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 to achieve it.
It’s all about determining their financial need! And with help from statistics around ageing and life expectancy, then sitting down to look at their living costs, discretionary spending, what they want to do with their newfound time and what the natural progression of life events could potentially mean.
For most people, quantifying their future financial requirements, delivers a dollar amount much greater than ever expected, particularly when it comes to considering the ever-increasing probability of a need for some form of supported living or age care.
Having quantified the future income and capital requirements, the financial gap and how it can be bridged is the next priority. Such bridging strategies can take several forms and combinations thereof.
Whether it be the provision of a capital sum for income production independent of the family farm or a mechanism that provides some guarantee of a steady future income stream, all ideally have the objective of insulating exiting parties from the seasonality typically associated with farming operations. For their successors, the objective here is quantifying and “nailing down” for their own business sustainability the financial impact associated with securing a transition of the farming business and the assets so integral to its operation.
Back in the days where the older generation had no aspirations beyond a continuing on-farm presence, farms and farm assets were essentially gifted to the next generation in a loose exchange for a place to live other than the big house, day to day financial support and aged care; but the world has changed.
Exiting farmers recognise the operational and sometimes relationship-enhancing advantages of living off-farm and want the financial security to do things and go places, independent of the business. Whilst successors want the ongoing operational security of knowing the integral assets are available to an ongoing farming business and the financial impact of the older generations wants are clearly defined and certainly not open-ended.
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
