Succession Planning

Succession planning involves a number of steps.  We help clients with:

Succession planning, when carried out well,

• Provides the farm “parents” with a mechanism for passing over management control to the next generation.

• Identifies a path for passing over ownership of farm assets.

• Identifies a mechanism for providing a retirement income stream.

• Provides the second generation with certainty with respect to their role in management control and (later) with farm asset ownership.

• The plan needs to be legally well thought through and supported by appropriate business structures and wills.

• Plans then provide asset protection in a number of areas (eg tax, marital breakup).

• Succession plans provide clarity to everyone with an association to the farm.

The most effective succession planning involves the following steps.

Step 1:  Succession planning is part of business planning

A well prepared business plan identifies:

• The farm’s mission statement – a core statement of what you want to achieve.

• Identifies key milestones to be achieved in order to fulfill the mission.

• It identifies key strategies in a number of areas including risk management (including asset protection), natural resource management and importantly, in succession planning and retirement planning.

Although succession planning can be done as a stand alone exercise, it is best done as part of a business plan.  Alan Blackburn and Associates Consulting assists clients with succession planning either as a stand alone exercise or as part of a business plan development.

Step 2:  When considering succession planning and retirement planning you need to know the value of farm net assets and the profit earning capacity of the farm business.

When planning for succession or retirement it is vital to know the net assets available and the income stream they generate.  Sometimes farm families imagine the farm business is capable of achieving a lot more than it can.  For instance it may be hoped that the farm business will provide a retirement income to retiring parents as well as pay a salary to the son(s)/ daughter(s) who take over the farm’s management.  Sometimes it is envisaged the farm will sell off some paddocks, to pay a lump sum to non farming children while still achieving the aim of providing retirement income and a manager’s salary.

Alan Blackburn and Associates Consulting assists clients in preparing realistic financial projections which provides a rational basis for evaluating the capacity of the farm business to meet desired retirement and succession planning outcomes.

Step 3:  Decide family retirement and succession issues

Deciding family succession and retirement issues often involves attempting to satisfy competing interests in the farm such as:

• Parents wishing to maintain control of farm management decisions while farming sons and daughters are seeking greater control.

• The desire to keep the farm asset as a whole yet provide an equal inheritance to all offspring.

• Competing desire for management control between farm sons/daughters.

• Acknowledgement of unpaid services provided to the farm (eg daughter does farm books, son works weekends on farm for no pay).  Often family members seek to have these unpaid contributions considered when succession plans are drawn up.

One way to help in deciding these issues is to hold a farm family meeting, facilitated by an outside facilitator.

Alan Blackburn and Associates Consultants facilitate family meetings dealing with succession issues.  The format and length of meeting will vary according to the farming situation and family structure.  The meeting will allow family members to express their interest and involvement in the farm and to raise issues to be resolved.  Prior to the meeting we ask clients to supply:

• Two farm maps, one indicating titles, their size and legal owners, the other showing paddocks and their size.

• A statement of Assets and Liabilities (we can prepare this)

• Farm projected cashflow (we can prepare this)

• Brief history of farm

• Your business structure

• Family tree (parents, children and spouses, grandchildren and spouses)

We may have a teleconference prior to the meeting which may also be attended by your accountant.

We suggest this meeting is attended by parents and children and their spouses, although this may vary.  A larger family meeting can be held at a later date.

Step 4:   Review and finalise business structures, wills, investments, retirement plans

This important step will usually be carried out with your accountant and solicitor.  It may also involve your investment advisor and banker.  The aims of the succession plan then are supported by legal frameworks and financial plans.

Step 5:   Inform all involved of plans

You may decide to hold a second family meeting at which the detail of the plan is explained and discussed. 

Alan Blackburn and Associates Consulting would facilitate this meeting if required.