Breaking down the process into a set of clearly defined steps makes planning for succession more achievable and not so daunting. It is also important to keep in mind that the process takes time and that it is not going to be resolved by one trip to the family lawyer or accountant.
Do consider using family meetings as a mechanism to open the lines of communication. While consultations with the whole family to try and achieve a consensus may seem daunting, inevitably decisions made will impact on all family members. Having everyone take ownership of the decisions and understanding how they were arrived at, will impact positively on the process you are embarking on.
There are also services and resources available to help with the process. Professionals with experience in facilitation and understand the range of issues involved, as well as people with expertise in the related management problems associated with the agricultural industry, taxation, accounting and the law, can provide specific succession planning advice and assistance.
Step 1: What are family members' goals and aspirations?
The goals that need to be explored to commence the farm succession planning process are the personal, financial and business goals of all family members. Although these three main areas need to be separated for discussion purposes it is also important to appreciate that they are closely related and cannot be looked at in isolation.
To assist with identifying these goals it is useful to write them down and express how important they are. The checklist provided can be a helpful start to this process.
Most parents seek to provide the best environment and opportunities for their children and reduce the trauma that they experienced, if any, at the time of taking over the farm from their parents. They might also want to assist their children to purchase a home or develop an alternative business pursuit. Many parents go without to achieve these goals, including saving for an inheritance for the children who will not stay on the farm, because they want to see all their children well set up in life.
Most parents would like to see the family business carried on and to keep the family together in some way, even when it might not be possible for all of the sons and daughters to make a living from the family farm. On their own behalf, parents want to provide for their own enjoyable and fulfilling retirement.
All children and marriage partners need to express their personal goals so that parents are quite clear about how they see their future. If this is not done parents may misunderstand how others in the family see their future. There are many examples of parents planning for their children to take over the farm only to be disappointed to discover that they are not interested in farming as a career.
The importance of all family members setting down their goals is to make all members aware of what others have planned for the future and to identify any conflict that might exist among these goals. Where goals are in conflict there must be open and frank discussion about how family members can reconcile differences (see also Step 2: Family conferences).
See also Law Topics section: Family communication(some information contained in Law Topics is specific to Victoria)
In addition to personal goals, members of the family need to express what goals they have in mind for the farming business. These goals may be expressed in the form of production goals, enterprise goals, business growth goals etc. It is important to convey these goals as they will impact any financial goals that need to be considered.
The need for reliable and regular cash flow is perhaps the most important influence in deciding what must be done as opposed to what you would like to do. Cash flow needs increase as the family grows and, where two generations are farming together, cash will be a significant aspect in the relationship between the generations, not to mention the spouse relationships.
Cash flow budgets are therefore a vital part of the planning process so that the cash requirements for all family members are recognised. This will include consideration of:
- education costs
- contributions to retirement funds
- normal living expenses; and
- sufficient funds for farm operation and any possible cash expansion.
A five year cash plan should be developed for each family member and for the business. Longer budgeting periods could be unreliable and difficult to forecast or realise. However, planning beyond five years can still be expressed more generally without the need to try and place dollar values on these plans.
Non farm income must also be taken into account in the cash flow budget as the aim is to understand all family members' needs. For example, income earned outside the farm business by a son, daughter or by a daughter or son-in-law will be important in determining the cash needs of all parties.
Financial goals may also relate to the development of capital growth or the reduction of debt so it is important that these objectives are taken into account in the preparation of relevant cash flow budgets.
The following observations were made during a family member discussing personal goals. It illustrates the sort of misunderstanding that can arise if these matters are not discussed openly.
Sally said that she felt it was expected that her brother, Joe, would inherit their family farm and her parents did not want the farm split up. However, she also said that she felt very much attached to the farm. When asked to comment on her parents' obligation to provide an inheritance for each of their children Sally said, '[t]hey don't have to do this by passing on the farm business, they could do it by helping to provide support for establishing a different business if that's what people wanted'
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