Start planning and communicating, there’s too much to lose
BY PAUL OMODEI DIRECTOR, PLANFARM
Succession planning is more about people than it will ever be about farming.
Growing up and working in the horticulture industry, as well as working with farming families for a significant time now, I have certainly gained a lot of personal and professional knowledge around this area known as succession planning.
I have recently experienced the process of succession planning myself and this highlighted certain aspects that should be avoided and other aspects that, in hindsight, should have had more emphasis placed on them.
I do not claim to have all the answers, but I do believe I am aware of the key ingredients required for an effective outcome.
I would also like to take a moment to state the number one component of this planning, which unfortunately sometimes gets overlooked in the process.
Succession planning is, and always will be, more about people than it will ever be about farming.
The ultimate measure of achievement in succession planning will always be family harmony after the implementation of the plan, not the fact that the farm and business continue.
When succession plans go do not go the desired way, it is certain that somewhere along the planning, some of those involved feel that they were not provided with the full picture.
Frequently, family members may end up feeling misled, not necessarily through words said, but through the lack of words.
It is important to keep this in the front of your mind and be prepared to have those conversations that some people may deem ‘uncomfortable’ very early on in the succession planning process.
Picture this common scenario —a now 40-year-old son came home when he was 21 after finishing his apprenticeship.
The small 100ha farm was small but productive. He worked on the farm for not a lot for years, got married, had two kids and then as his children’s primary school days raced by, he and his wife started thinking about secondary education for their children and ultimately what the future held and the role the farm would play for them as a family.
The son initiates a conversation with his parents regarding future planning, only to learn that his parents not only required a lot out of the farm financially to retire but that they wanted to provide equally financially for the non-farming sister and brother (neither of whom had worked in any capacity on the farm in their adult years).
This of course came as a big shock to the farming son who felt that through his parents’ actions so far, it was his given and obvious right to take over the farm.
He had made the incorrect assumption that his sister and brother would be the beneficiaries of just what was left of his parents off-farm assets, not part of the farm, given they had never contributed to it.
It should be noted that the farm, on the back of rising land values, was now worth $2M, however, it realistically could only support one family, the parents had minimal off-farm assets — a house near the coast and not much superannuation.
It is not my place to judge the parents right to allocate the farm as proposed above but what I do question is the wisdom of not telling the farming son much earlier on (perhaps before he started work on the farm or not long after) what their estate plans were.
If this son had known this was to be the case, he may well have chosen a different career path or even if he had not, he would not have been surprised by his parents’ plans, which emerged many years later.
I cannot stress enough, planning for, and communication of, how you may distribute your assets and wealth later in life can never be started early enough.
Unfortunately, many farming parents do not think of what the implications or consequences are when allowing sons or daughters to come home to the farm.
There are many elements that must be considered such as farm scale, equity, retirement requirements and how you wish to treat any non-farming children when commencing the planning for succession.
In recent times, I have helped numerous clients with children approaching the end of high school (or slightly older) consider and choose what message they can give to their children as they start choosing their working and career pathways.
Ensuring that the messages are age appropriate of course (such as do not disclose the value of assets of the business nor talk too specifically) it is important to contain enough information for mum and dad’s intentions to be perfectly clear.
These are vitally important conversations to have, and more so if your children are approaching their late twenties.
Before commencing these conversations, parents need to be aware of what the capacity of the farm is, whether they are trying to grow the business and what their off-farm investment position and strategies are.
The parents need to be fully informed to be able to communicate effectively and with clarity to the children.
Assuming that the parents are of the agreed view that there is a career pathway on the farm for the child/children, then they should state explicitly and with accountability what is expected by an aspirant to prove their interest and commitment.
Early, clear, open, honest, evolving, and regular communication are the core elements to successful succession.
An example of the messaging at this age is as follows.
• Peter, Jane, and Tom, you will all be given equal opportunity, independent of age or sex, to come back to the farm to work and if you like it stay and forge your own careers.
• To be eligible to return to the farm it would be expected that a suitable qualification be obtained (i.e., degree or trade) and that a minimum of two years’ work experience elsewhere be undertaken first.
• It would be expected that if any of you wanted to pursue a career on the farm that you start your ‘apprenticeship’ on the farm by age 25.
•A long-term commitment would be expected by approximately age 30.
• Our retirement will be well-funded and not compromised by the possible desire of the next generation to ‘go farming’. This will likely require capital to flow from the business in the future.
• If only one or two of the three decides to have a career on the farm (depending on viability) then they need to understand that significant equity/capital, which could include farmland, will flow to the rest of the family to allow for ‘fair’ allocation of assets/wealth.
• The farm is of good size but likely not quite large enough to support three families, so it would need to grow (both operationally and in land size) if all of you chose to farm.
By providing the above type of information to older children/young adults you not only clearly outline your thinking at an early age, but you also invite robust and detailed discussions around this subject. This conversation will form the basis and a reference point for future discussion that can continually build upon as the years go by.
If these conversations happen, and it is done well, then there should be no great surprises emerge for anyone in the family group — even as they get married and their circumstances change.
Early, clear, open, honest, evolving, and regular communication are the core elements that will give you and your family the best chance of successfully navigating the challenging farm succession anxiety if you find yourself within it.
Hopefully, you may even find you have a happy and united family regularly sharing Christmas lunch together in your ripe old age!
MORE INFORMATION
Please contact Planfarm if you would like to discuss any aspect of succession planning. We have numerous experienced consultants who can help you.