How accountants can play a key role in farm succession planning
Farm succession has always been a complicated issue, but accountants are well-placed to help their rural clients navigate the maze of issues which need to be confronted.
From the complex legal issues which can arise, to financial and interpersonal issues which can arise during the succession process – it can all seem too much for some clients.
This isn’t helped by the fact that farm values over the past decade have shot up, making the process of getting it right that much more important.
In fact, some commentators believe that private farm succession is now one of the leading issues the sector is facing as a whole.
But, it appears farmers are putting it in the ‘too hard’ basket.
A Southern Field Days survey conducted in 2016 found that 60 percent of farmers think succession planning is a major issue. Only regulation and fluctuating commodity prices rated higher.
Given the average age of farm owners is bordering on 60, it’s perhaps no surprise that succession is in the forefront of their thinking.
Some estimates have put the forecast capital to replace their exits over the next decade at $60 billion.
So, succession is important and farmers are thinking about it – but a fraction have a formal succession plan in place.
A recent survey by the Red Meat Profit Partnership found that just 38 percent of sheep and beef farmers had a plan in place.
Participants in a recent MYOB rural discussion group felt this figure was actually too high.
Whichever way you look at it, farm succession planning is becoming increasingly high-stakes, but few farmers are putting formal plans in place.
So, how can you help your clients get organised?
Enter the accountant
One of the biggest hurdles farmers face when thinking about putting a formal plan in place is simply starting the conversation.
As highly trusted advisers (only behind vets as rural professionals go), you can encourage honest and well-informed conversation around the future of the farm between family members and other rural professionals.
One of the other major hurdles faced by farmers when coming up with a succession plan is that farms, particularly in the sheep and beef sectors, simply aren’t profitable enough to enable a transition to take place.
Who would want to take over a business which is only making a moderate amount of money or, even worse, losing money?
With good advice and the use of modern decision-making software and farming technology the farming business can put itself in a best position to have a range of succession options which meet the farming family’s goals.
While it can be a difficult subject to bring up (as it’s often a pretty confronting subject), doing nothing both accentuates issues and minimises options.
So, how do you get the ball rolling?
Succession planning tips
- Start early. Set up the correct legal and financial structures to operate a successful business and provide options for succession in the future.
- Include all family members in the discussion and find out what everyone’s goals and aspirations are.
- Get the right people involved. In many situations, there can be significant benefit to the family in appointing an independent person to act as a facilitator.
- Look at all the options which can help secure the family’s goals. There are an increasing number of arrangements being used these days including equity partnerships between both family and non-family members which are achieving great results by injecting fresh blood with new ideas and enthusiasm into the farming business, while retaining the knowledge and experience of the older generation.
- Any plan needs to secure mum and dad’s financial future.
- The new farming business needs to have a reasonable chance of success.
- There needs to be a plan for non-farming children.
There are some great resources available to help broach the topic with clients and also help them work through the various options.
Red Meat Profit Partnership have prepared some useful resources for you to uagse with clients, including some neat animated videos. Check them out here: http://www.rmpp.co.nz/page/fbo/
Dairy NZ also have material that’s more farmer focused here: https://www.dairynz.co.nz/business/planning/succession-planning/