Five essential factors for farm succession planning
Practical tips for accountants to guide agribusiness clients through succession planning.
- Agribusinesses have unique features that can make succession planning complex. Farms are often family concerns.
- CAs need to clearly explain the scope of their involvement in succession planning and listen carefully to all parties.
- Agribusinesses are often asset-rich and cash-poor. Buying out parents and non-business siblings at market value can be challenging.
By Felicity McLean.
Any farmer will tell you that running an agribusiness is far removed from running a regular business. For a start, many farm properties include the family home, so a lot of passion and hard work has been poured into the land for years.
The business succession plan, more often than not, involves passing the farm from one generation of the family to the next.
As trusted business advisers, chartered accountants commonly guide and advise their agribusiness clients through the succession planning process. “Just as every family is different, every succession plan is different, too,” says Jonathan Forrest FCA, Director of Boyce Chartered Accountants in Cooma, New South Wales. “There is no ‘one-size-fits-all’ solution, but there are some common factors you should consider.”
Related: Rural Insight guide to succession planning (Australia)
Jonathan Forrest and Lyall Evans share more advice and practical tips in the CA ANZ Rural Insight paper Succession Planning Guide For Agribusiness (Australia).
Related: Rural Insight guide to succession planning (New Zealand)
Jonathan Forrest, Lyall Evans and Tony Marshall share more advice and practical tips in the CA ANZ Rural Insight paper Succession Planning Guide For Agribusiness (New Zealand).
Forrest has co-authored CA ANZ Rural Insight guides to succession planning for agribusiness for Australia and New Zealand. He highlights the following five tips for chartered accountants helping clients with family succession plans:
1. Know the trigger points
It is in your clients’ interests to have a succession plan in place. Besides providing business continuity, it can also save a lot of heartache in a family. But despite an adviser’s best efforts, many people don’t confront succession planning until there is a ‘trigger’ event.
Chartered accountants should look out for these triggers to encourage a conversation about succession, says Forrest: “First, you have triggers that occur as part of the lifecycle of any business,” he says. “For example, purchasing a new property or premises, adopting a new enterprise, or entering a new market.”
Then there are other family-related triggers, says Forrest. “Children being born can prompt parents and grandparents to consider the future. Or a new marriage can sometimes raise concerns among existing family members, because an ‘outsider’ is now involved. Divorce can stir up family disruption, as can health issues or a death in the family.”
2. Explain your role, then listen
It is important that your client understands your role and that you clearly understand their priorities and circumstances. As a chartered accountant, you are there to advise on succession planning and help the family understand their alternatives. You should explain the process you will follow and establish ground rules. Then throw the floor open to them.
“Listening is so important throughout succession planning,” says Forrest. “You need to speak with the parents and understand their position. Are they unwilling or eager to let go of the reins? Are they clear about their retirement plans? Do they want to split ownership of the farm among all or only some of their children?”
Talk with the other family members, too, he advises. Find out who is driving the succession planning agenda. Which family members are confident in managing their family’s affairs? What is their appetite for risk? And so on.
The CA ANZ Rural Insight Australia guide and New Zealand guide contain detailed checklists of questions to ask various family members.
3. Give the family the right platform
Whatever the circumstances, it’s important that all interested parties feel they have been heard. Different circumstances will require different approaches, says Forrest.
“Excluding family members can provoke feelings of isolation and resentment, so aim to be as inclusive as you can,” he says. “You might provide a survey or questionnaire for each person to complete, to inform further discussions. It may be necessary to meet family members individually or collectively.
“You may also consider bringing in a facilitator to provide independence, objectivity and control to meetings – allowing you to concentrate on the business/accounting issues.”
Related: More resources for members working in rural and regional areas
Read a selection of Rural Insight guides for practitioners working in rural and regional areas, all written by expert chartered accountants. These practical papers tackle many of the challenges unique to businesses from rural and regional areas.
4. Consider assets vs equity
Unlike many other businesses, farms are often asset-rich and cash-poor. Typically, you could expect to see a return on assets of, say, 5% for farm businesses and 25% for non-farm businesses. Based on these returns, a farm business making a net profit of $200,000 would be generating this from $4 million in assets. And these land and business assets usually are of considerably higher value than other family assets.
“Buying out parents and non-business siblings at market value could be challenging with a farm business,” says Forrest. “It is also hard to be fair about transferring ownership of a family farm while also being equal with the split of assets between family members. So you need to raise this issue with a family early in the succession planning process and address any opposing views on what constitutes ‘fair’.”
5. Bring in other expertise, where required
Accountants are well placed to assist families in working through succession issues, however other professionals such as solicitors and farm advisers also need to be involved. Often this will be a cost-driven decision, but it may also be about who the family knows and trusts.
“As chartered accountants, we are in a unique position because we’re often the first port of call for these matters,” says Forrest. “However, we won’t have the answers to everything. If you are the first professional to get involved in this process, then don’t leave it too long to get the input of other relevant experts, too. You can still be the primary point of contact for the family, while consulting those other professionals.”
This article is based on information and insights from Jonathan Forrest FCA with contributions and insights from Lyall Evans FCA and Tony Marshall CA.