SUCCESSION PLANNING

Succession planning is the transfer of responsibility and control of a business. It is not to be confused with estate planning which is the transfer of wealth. The two do not automatically go together although they are sometimes carried out in tandem. In general, if succession planning is carried out as a long-term project then wealth transfers and estate planning become separated.

Family operated agricultural units have unique succession planning issues. It is not merely a matter of simply changing managers. There are many questions to address. A high level of profitability is essential to successful succession planning.

Our succession planning services include the following:

• Succession planning is a governance matter
• Succession planning is part of a life time cycle
• Relationship between succession planning and business planning
• Management succession strategies
• Supporting more than one family
• Farm profitability
• Retirement planning and investment
• Who should be involved
• Spouse/Partner matters
• How to let go – the control issues
• The tools for making it work

PLAN FOR SUCCESSION AS EARLY AS POSSIBLE

Few businesses have such a high proportion of capital invested as farming.. This is primarily because a farm also provides a home, and in many cases a portion of living expenses.

Jeff Matthews, from Spicer Portfolio Management, says most people appreciate the time and energy that goes into developing and managing a successful farming business.

"While many farmers' desire to succeed is based on accomplishing personal goals, much energy is focused on providing a profitable business for successive generations,"  Mr Matthews says.  He warns it is vital that farmers start planning for the succession as soon as possible.

"Passing on any business is hard enough, but when it involves your entire livelihood, including your home, this can be even harder.  With fewer than 30% of family businesses surviving the transition to the second generation, farmers are not alone in their attitude, but do need to reprioritise their planning."

Mr Matthews says New Zealand farmers currently have pressing issues to contend with:  profits are down, land prices are high, which makes is hard for new entrants to get into the industry, and many farmers have few assets left outside the farm to provide an inheritance to children.

"Asset-rich farmers may find themselves approaching retirement in less than ideal circumstances and dependent on payments from their children for income, who may also be burdened with the prospect of paying out their siblings."

"It is not only important for farmers to receive a decent retirement income to live off, but equally for the next generation to be able to afford to buy the farm."

He says a fully-tailored succession plan can help farmers solve these problems and ensure that other issues which may not have been thought about are discussed.

"It can set some clarity around concerns such as whether a son or daughter's marriage breakdown could lead to the loss of the farm and how the rest of the family can be in agreement if only one child wants to farm."

"Tax issues as well as how these agreements and decisions can be documented can then be made."

"Forming a family trust is an important part of succession planning.  A trust can provide extra flexibility to ensure financial parity amongst all children and can also be used to help protect the farm in the event of a marital separation.  Because a maximum of $27,000 yearly ($54,000 per couple) can be gifted, the sooner this is formed the better."

Given that most farmers either need to build or buy another property after they retire, diversifying and generating off-farm investment assets should also form part of succession planning, he says.

"By regularly investing outside the farm, farmers can protect themselves from the impact of cyclical farming downturns.  A sound retirement plan is essential and covered in depth in succession planning."

Mr Matthews says creating an investment fund independent to the farm means there is less pressure to take capital out of the farm whn it is transferred to the next generation.

It will also help with the process of providing for children who do not receive a share of the farm.

"An agreement between the generations on living arrangements and accommodation is something else to consider, along with the degree of involvement the retiring generation will have in the farm."

"Other events, including business failure, illness or injury also need to be planned for."

He advises that developing a succession plan with a professional adviser can laso take the heat out of intense emotions and anxieties often associated with succession planning.

"A plan may take some time to implement but all family members will know where they stand."

Extract from Agribusiness