Succession planning for family agribusinesses is a topic that is both talked about a lot, and not enough.
That is, professional advisors talk about it a lot, but those who should be doing the planning – families operating agribusinesses – often don’t talk about it enough.
Furthermore, discussions that do take place are not being converted into formal succession plans. In fact, in a recent study of families who operate agribusinesses around 75% of participants said they didn’t have a formal succession plan in place.
“Talk early and talk often” is the mantra often repeated by advisors and across the media. This is a core message that we believe in, although there are a number of other things that families should be doing.
- Talking early: It’s not too early to start when the kids are in high school. While many kids won’t know exactly what they want to do when they leave school, they’ll probably have an idea as to whether they want to live and work on the land, or move to the city.
- Talking openly: Everyone should express their thoughts and expectations freely. For example, if a family member wants to take over a particular property, they need to make this known.
- Talking often: The more frequently everyone talks, the more momentum is kept in the planning process.
- Setting goals and timeframes: Everyone involved needs to think about where they want to be and when, and work together to set goals and timeframes. One of the more obvious milestones is when parents plan to retire. Everyone knows this will happen one day, but knowing when it’s planned to happen is important. The kids need to prepare themselves to step up both mentally and financially.
- Involving appropriate advisors: This includes your accountant, your lawyer and your banker. Everyone has a role to play because not one person has all the answers. For example:
- Your accountant can advise on the tax implications. There are a number of CGT exemptions and rollovers available for small businesses, which can assist in minimising the tax payable as a result of transferring assets;
- Your lawyer can advise on the stamp duty implications. In Queensland, the family business concession can be applied to the transfer of property used in primary production businesses, such as land, livestock, crops and plant and equipment. This can result in no stamp duty being payable;
- Your lawyer and accountant can both advise on the appropriate entity type/structure. There are legal and taxation considerations when selecting an entity type/structure, such as asset protection and tax effectiveness. Of increasing concern is protecting the family farm from family law claims brought by a child-in-law in the event of separation;
- Your banker can advise on your bank’s requirements to fund the plan and the ongoing operation of the business. For example, who is required to be a borrower or guarantor, what level of equity is required, and whether any formal agreements (such as leases) need to be entered into between family members.
- Document the plan: Reduce the plan down in to writing that is clear, succinct and understood by everyone involved.
Every succession plan is different because every family and business is different. Open and honest discussions within the family, coupled with tailored advice from your professional advisors working together, is essential.