Succession Planning is not a one off event. It is a transition over time and the earlier the preparation process starts the more options are available. It is never too early to begin the thoughts and discussions that go into a gradual handover of the business to the next generation. Many issues have to be dealt with and a sound long term plan creates certainty for the individuals involved, promotes business confidence and the basis for effective retirement planning.
How long is the road?
There are not many things in life of which we can be certain. We can be sure, however, that at some point our life will come to an end. It is also likely that some time along the way, we will want to retire, either because that is our wish or we are physically unable to continue working on a full time basis.
Business Owners focus so much of their attention on the survival and growth of their business that they often do not think about the journey ahead. The average life expectancy in Australia is about 86 for women and 80 for men. Most of us would like to live beyond this, however, it is worthwhile to think about how many years we have left to make retirement plans for when we cease work and to plan our estate for when we pass away.
For instance, you may not have revised your will in recent years. It may not reflect the true ownership of current assets, not consider unfortunate commercial events or not take advantage inter-generational taxation and asset protection measures that may be available.
As our society has become more educated, your children’s career options grow and working in the family business may become less attractive. It is a fact that more and more rural children are deciding to pursue careers outside of farming. But for those that choose to join the family farming business a number of questions need to be answered. How should they be introduced? How can they be mentored? How can they develop the skills and knowledge necessary to successfully take over the reins of the business? Every current business owner undertook a learning process that started with the building of knowledge, progressed to taking on management responsibilities and culminated with the ownership of the business.
Conventional wisdom would see children undertaking tertiary studies then gaining experience outside of the family business. Preferably in a well run business where they can make mistakes without everyone’s watchful glare. In years to come when they join the business they need to plan their career and the current owners should provide them with a degree of certainty in regard to their future prospects and their potential to take over the ownership of the business at some point in time.
Many business owners confuse Ownership transfer with Management transfer. They sometimes refuse to raise the subject because of their concern that they will lose control.
A gradual release of ownership and/or management can have a number of beneficial effects:
- Realise much needed cash for development, to reduce debt or pay outstanding bills
- Reduce the physical burden of managing the property/business
- If partial ownership or management is passed on to the next generation, it will allow them to develop their skills and derive income in preparation for a future transition of the whole business.
Planning for Retirement
Way too many farming families have their wealth tied up in the business. In both personal and business terms planning for retirement makes sense. Not only does this enable a smooth transition of the business to the next generation but can also minimise tax liability. The creation of off-farm assets is an important and continuing process and should be reviewed on a regular basis to ensure that future needs are met. Further, if succession planning is delayed for too long, the ability to take advantage of important taxation concessions available through superannuation can be severely inhibited.
How to start the process
Owning and managing a family business can be a lonely job. So many things to do, so many great opportunities, so little time, such limited resources and so many problems. Where is it all leading? How can you gain perspective? How long can you keep going? How can you afford to retire? These are just some of the day to day thoughts facing farming families.
The answer is to start the planning process, compartmentalise the issues and deal with them in a sensible, pragmatic and prioritised fashion. Identify the key issues to be considered and place them in three distinct “silos”
- Your Succession Plan
- Your Retirement Plan
- Your Estate Plan
Busness Transtion Plan
|Succession Plan||Retirement Plan||Estate Plan|
By dealing with them in this order you will better understand the future of your business. This will assist in creating a sound retirement plan. When your retirement aspirations and expectations are in place, your estate planning will be more relevant and effective. Too often these issues are dealt with on an ad hoc basis and the important relationship s and key dependencies are lost in a confused planning process.
Finally, start your planning process now, whether your children are ready to take over the farm or are still at school. It’s never too soon to establish a sound future for you and your family.
James Benson is an Executive Director of Next Rural.
Next Rural specialises in business transition and succession planning
Next Rural have put together a simple yet comprehensive guide to business transition and succession planning. To obtain a copy of this FREE guide, with no obligations, email Next Rural at info@ nextrural.com.au or call 1800 708 495.