Farming faces huge uncertainty and succession planning for the future is vital for all farming businesses, and yet can be one of the most difficult things to do. There are fundamental points that business succession planning for farmers needs to address.
Start the conversation
Successful business succession planning needs honest and dispassionate conversations. These conversations have to cover far more than just transferring ownership of the farm assets to the next generation. In the current climate, all farms need to have a strategic business plan. Discussing and agreeing the goals of the farming business is vital. This will include the need to change and adapt. What the older generation always did may not be suitable going forward. The business plan has to be open to fresh ideas.
Take a “farm first” approach
Farms need a solid business structure. The farm business has to be put at the front of all discussions. Adopting a “farm first” policy will enable these discussions to focus on the needs of the business and less on the relationships between the individuals who work within it.
It might seem obvious, but a succession plan needs to clearly identify who the business successor is going to be. Inevitably this will be somebody within the family or the business who already has the necessary experience. It goes without saying that the person identified to take over the farming business needs to have the necessary skills, experience and ability.
Individual aspirations also need to be considered
Not all of the next generation will necessarily want to succeed into the farming business, and not all of the older generation will be in a financial position to take a step backwards. It is also critical to identify who owns which of the assets used in the farming partnership at present, and who will be owning them going forward. It cannot just be assumed that assets will be handed down automatically. Prior to transferring any assets, it is vital to take legal and tax advice as well.
Transparent and honest discussions
It is also critically important to consider pre-nuptial agreements as a part of the transparent and honest discussions that need to take place between the generations. Very often it could be not so much the relationship between the generations that stops succession planning, but the risk that intended spouses could pose to the business, should there be a divorce. Many farming businesses are adopting the approach that equity partnership or ownership in the business is dependent on appropriate pre-nuptial agreements being in place. Making this a condition of succession planning can help remove the sensitivity around raising the issue of pre-nuptial agreements. Including such agreements as part of a “farm first” approach is easily understood, and makes the issue much less personal.