Rural succession planning can be defined as the inter-generational transfer of a farm and the planning process of preparing for when the next generation inherits the family farm business.
Craig Dangar from Vault Accountants explains that “farming enterprises are different and rural succession can be a lot more difficult than non-rural succession, there is often a misallocation of assets and an alignment of expectations. The problem is often generational, with family members having different expectations, and often wants to keep farming enterprises going but at a cost of labouring them with substantial debts. The rural succession process is one that needs a lot of planning, communication and understanding to get right,” says Mr. Dangar.
There are a number of challenges associated with rural succession planning and many disagreements can occur between family members. It is therefore important to make sure that family members are clear about the expectations they have of each other and the feelings they have in regards to taking over the family farm when the situation arises in the foreseeable future.
“Open communication is hard and finding out what everyone wants is tough. We have found that there is often a forced expectation that only comes to light after the plan is in place, or worse a plan is decided without the input of all the family members. Communication and understanding are super important. These are critical to getting it right and making sure that every family member is aware of the future plans that are in place,” says Craig Dangar.
Sometimes there will be a situation where the next generation of family members wish to pursue a different career and have no interest in working on the family farm. When this happens the older generations who are currently in charge of the farm need to be prepared to deal with this type of situation and have a plan b in place to make it easier for them to navigate this uncomfortable but extremely common type of situation.
“It happens a lot, a situation where the next generation doesn’t want to be involved in the future of the family farm. This can be often hard for each generation to appreciate the wants of other family members. This comes down to talking through the issues and making decisions as a family and making sure you can reach an agreement and understand why each person feels the way they feel. Once again clear communication is important,” says Craig Dangar.
Taking over a family farm can be full of challenges for the new generation in the early years after taking ownership of the farm.
“Debt, succession should start early and be properly funded, putting debt into the farm is generally a recipe for disaster,” says Craig Dangar.
Ultimately a succession plan should be finalised several years and preferably decades before the next generations takes over when the current owners of the family farm decide to retire.
“A succession plan should be finalised years, if not decades before retirement. We are now finding that the next generations are in retirement age or retired before taking over the farm, this is simply not practical and causes a lot more problems than it solves. There should be years of handover and decisions made today need to be considered for the next twenty or thirty years, farming is a dynamic business and it needs substantial forward planning,” says Craig Dangar.
We the team at Vault Accountants specialise in this field as it is not a simple structure. There are not just financial considerations but emotional considerations that need to be acknowledged as well. Families that communicate find the planning process a lot easier, the families that don’t involve all the stakeholders often find it hard to get something to work.
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