Are you looking to create a succession plan for someone to take over your farm business? You’re in the right place.
The reality for many farming families is that the next generation to take the reins of the business is also the default manager of your superannuation fund.
Suppose you, as the retiring generation, do not have an independent source of retirement funds. In that case, you will depend on the performance of the business and its managers for your security in retirement. Therefore, the incoming generation mustn’t be just good farm workers and production managers but also proficient financial managers of the business.
A common theme amongst the countless farming events I’ve attended over the past 30 years where farm succession planning is on the agenda is accounting and legal.
The discussion is always dominated by these two main areas, with experts advising on who gets what, protecting the asset base and minimising any tax payable.
In recent years, I have seen the emergence of people-orientated advice, like what is suitable for the family and its relationships and whether we should stay farming. Much of this advice is putting the cart before the horse, as most advice focuses on asset succession, not business succession.
The current owner-managers of a farm business are the CEO and CFO of a large, complex enterprise requiring advanced skills and knowledge.
How to craft a strategic plan for successful farm succession
Step 1: Identifying the skills and roles
A successful farm business succession process should start with identifying all the skills and roles necessary to run the farm business successfully in the future.
- Who will fill those roles?
- What training do they require to become competent in those roles?
- How do we implement a one-to-ten-year plan to teach these skills before the new person takes on these roles?
Step 2: Developing farm financial management expertise
Among these roles, farm financial management is critical. It is more than just keeping the books for tax compliance; that's bookkeeping; their role includes:
- Maintaining detailed financial records for performance analysis.
- Efficiently managing payroll.
- Creating budgets and cash flow forecasts.
- Forecasting balance sheets for financial stability.
- Analysing gross margins for profitability.
- Determining break-even points.
- Providing valuable business reporting analysis.
- Evaluating investment opportunities — funding, interest rates, return on capital.
- Developing strategies for commodity marketing.
- Exploring derivatives trading to manage risk, e.g., futures contracts,
- Building relationships with lenders and investors.
Before considering asset division, it's crucial to design a business succession process that operates under the assumption of having no assets. The primary goal is to prepare the next generation of managers whose role is to maximise return and minimise risk for the benefit of the primary shareholders: you! Providing you, the retiring generation, the clarity and the security you need so you can look forward to the future with confidence.
Farm succession planning is about securing the financial future of your farm and family.
By prioritising financial expertise and strategic planning, you can ensure the continuity and prosperity of your agricultural business.
After you have this process bedded in and working well, consider how you may divide the assets in the future between the next generation if this is what you want to do.
Cheers to Your Bright Farming Succession!
— David
