Do’s and Don’ts: What do the succession planning experts advise?

This week on Table Talk we are covering the theme of Farm Succession and Transition Planning

The three-part series on succession planning includes:

  1. Farm Succession Planning: An introduction and useful guides
  2. Do’s and Don’ts: What do the succession planning experts advise?
  3. Learning from Others: Succession Planning Case Studies

Today, we bring a range of perspectives on what is encouraged, and what is discouraged, throughout the succession planning process. This Do’s and Don’t list is by know means exhaustive or prescriptive, but may help in bringing clarity to your own progress and help you get the process started.

Andrew Beattie of ProAdvice Pty Ltd states the following as belonging on the list of to-do’s for succession and estate planning in family farming businesses.

  • Separate the succession and estate plans.
  • People matter most; set the ground rules and guiding principles for decision making. Start with needs and objectives.
  • Time frame is important.  i.e. do it early, take your time and don’t barge through.
  • Allow for a balance of flexibility and certainty.
  • Ensure education on the future implications of the plans.
  • Go through and understand the “What ifs”; all the D words : death, divorce, disagreement, disability.
  • Formal agreements are vital; deed of family arrangements.
  • Succession is a process or a journey not a destination.

Plan to manage family changes and your farm business (GRDC) stated the following as integral to the process:

  • Clarifying the aspirations and expectations of family members is an important part of the planning process and can help build understanding and balance to family and work life. ■
  • It is essential to involve legal and accounting professionals in the process when considering changes to the farm business structure.

Ken Solly for Sheep Connect SA BestWool/BestLamb Conference in 2017 looked at what young farmers should consider when  starting out on the family farm. The key points provided by Ken on what young farmers must do to succeed include:

  • you must have farming in your guts. If you don’t have that intrinsic love for the land, you’re probably going to struggle, because the two most important things in agriculture – the weather and the market – are out of your control, and both will have a huge impact on your livelihood
  • secondly, stay on a fast learning curve because you must aim to be in the top 20% of producers
  • have defined 20-year goals. You need to know where you and the business are heading. If you don’t know where you are going, any road will get you there, but there is a fair chance you will be dissatisfied with your destination
  • get some very good mentors around you; people you can really learn from, people who will actually help with your discipline. There are too many ‘gunnas’ in agriculture; you need to have discipline to follow through with your plans
  • lastly, hang around with better farmers than yourself. Make sure you try and ascertain who the top farmers are, and try and learn from them all the time

Kerry Ryan from the Australian Dairy Farmer suggests the following is needed to succeed in succession:

  • Acknowledgement of the difference between “management succession” and “ownership succession”.
  • Confirmation of shared values so that everyone is aware of the behaviours and outcomes that will deliver these is key to a solid foundation.
  • Putting time into understanding their respective personality styles and the impact of these on leadership, management, and interpersonal dynamics.
  • Commit to making a start.
  • Develop, define and follow a process.
  • Succession must be considered as a process
  • Feelings before facts
  • Treat succession as an ongoing discussion, not one discrete conversation
  • Address the financials
  • Respect differences in personalities
  • Develop a vision
  • Include all family members
  • Build flexibility into the process
  • Seek advice
  • All family members must commit to the process

However, shortcuts are dangerous, explains Ryan. High-risk shortcuts include:

  • Casual approach to meetings and communication
  • Absence of documented sharemilking or employment agreements
  • Insufficient consultation to establish a shared vision
  • Lack of transparency around management decisions.

The Farm Journal Legacy Project outlines three broad reasons why family operations do not successfully transition to the next generation as a going concern:

  • Incompatible estate planning
  • Insufficient capitalization
  • Failure to prepare the next generation for a leadership role.

Paul Neiffer, US Farm CPA Blogger identifies steps to be successful in the farm succession planning process and things to avoid.

He states do these things:

  • Think of farm succession planning as a journey, not a destination.
  • Complete a financial analysis of the past and present farm business. A project where you think it will be in five years. If the farm is not making money or cannot support all of the families involved, what can you do to change it?
  • Become educated on succession planning. Participate in workshops and seminars, read articles and stay involved.
  • Consider using a family business meeting to open lines of communication. An objective third-party facilitator can help the process.
  • Determine the most important values and priorities for each family member. Some of them might surprise you.
  • Figure out each person’s personal, family and business goals.
  • Address the issue of fair versus equal division of the farm early in the process, especially if non-farm family members are involved.
  • Develop a successor development plan for any family members who plan to take over the business. This training and development strategy will provide future operators with the appropriate skills and knowledge to successfully run the farm.
  • Discuss various options in a free-form conversation. You will shrink the list down later.
  • Assemble an advisory team (lawyer, accountant, financial planner, banker, etc.) to help you in this process.
  • Consider income and estate taxes but don’t focus on them.
  • Write it down so you’ll be sure to finish it.

But, don’t do these things:

  • Be afraid to ask questions and avoid listening carefully to the answers. You might not like the answers, but they are important to the process.
  • Assume you know what others are thinking. Instead, let them articulate their views.
  • Be afraid to share the load. Instead, results likely will be better if you let go and allow others to help.
  • Define life or family as the farm. There’s more to life than work on the farm, including family, friends, sports (yes, it is OK to golf!), hobbies, etc.
  • Put all of your eggs in one basket. Instead, plan ahead, think early about retirement or succession, and save and invest in off-farm assets so you have options.
  • Rely on one adviser. A team can do a better job.

Kellogg Rural Leaders Programme – Mark Stevenson, stated that four major categories of inhibitors to successful farm transition were found:

  • Poor communication
  • Lack of a structured process
  • History, harmony and family dynamics
  • Delayed timing of succession

In The Farm CPA: Top 10 farm succession-planning roadblocks, Paul Neiffer lists a checklist of hazards to avoid during the change in ownership process.
The list includes:

  • Start planning too late
  • Assume a family member will take over the business
  • Divide the farm equally among heirs
  • Wait too long to transfer real authority
  • Distrust your successor
  • Fail to have potential successors gain experience at another business
  • Be secretive about your plans
  • Dread your retirement years
  • Plan on your own
  • Avoid the journey and look for a cookie-cutter process

There are definitely some overlapping and key themes that arise out of those lists.

Let me leave you with this. Kellogg Rural Leaders Programme – Mark Stevenson stated that:

“If starting is daunting, think about what will happen if things don’t start, succession discussions are avoided and no planning takes place? Will that be harder? Delaying starting allows expectations, realistic or not, to further cements themselves and assumptions to grow. This can lead to disappointment and resentment within the family.”

In our final post, we will focus on presenting a range of case studies that show different approaches to succession planning in alternative contexts.

Disclaimer: We note that there are many farming models at work in Australia and the inter-generational family farming model is just one of them. Although this series concentrates on the family farming model, there are still some important takeaways for all. Stayed tuned for later themes on alternative farming models and pathways into farming.