The Importance of Succession planning for your Farm

Many farming businesses are facing succession challenges. It’s not just helpful but a crucial step in securing the future of your business, your land, and your family. We’ve discussed this in articles before but why does succession planning matter so much, and what are the factors you should consider?    

Succession planning is essential for family-owned or operated farms, which are common here in New Zealand. Farming is more than a job, it's a lifestyle that goes from one generation to the next. But as farm owners age, they need to plan for the handover to the next owner.   

Without a plan, your business and family could suffer. You could face problems like:    

• losing your edge and vision;   

• hurting your image and trust;  

• lowering your performance and profit;  

• dealing with legal and tax issues; and  

• causing family and stakeholder conflict.  

A good plan can benefit you in many ways, such as:    

• retaining a strong team and leadership;  

• making sure your business lasts and thrives;  

• increasing the value and appeal of your business;  

• preserving family harmony and legacy;  

• avoiding tax and legal troubles; and  

• being customisable to your situation and goals.  

It needs clear and open communication, input, and cooperation from everyone involved, like family, staff, advisors, lenders, and buyers. It also needs to be adaptable to changes and chances.  

Differing preferences    

The younger generation may not want the family farm or have different goals or values than their parents. They may also lack skills, money, or other options.  

Ageing farm owners    

Stats New Zealand says farmers' average age rose from 42.5 in 1986 to 51.4 in 2013, with sheep and beef farmers close to 60. While there is limited recent data there is no indication this has reversed and if anything, it's likely to have accelerated.   

Market environment    

The business environment changes constantly because of technology, globalisation, consumer trends, regulation, climate change, etc. These factors may pose threats or opportunities for existing businesses or potential successors.   

High land values and low returns   

New Zealand farmland is very expensive and hard to buy for new farmers. Prices are mostly stable except for some areas where the government encourages carbon forestry. To own a farm, people need a lot of money or a good succession plan.  

Succession strategy   

A common problem for farm owners is the lack of a clear and communicated succession plan. They may also struggle to find the tools or resources to execute their plan. According to Alchemy Consulting, 20% of New Zealand business owners plan to sell within the next two years and up to 10,000 businesses could change hands over the next five years, many of which are in the agriculture sector.   

How do you create a successful succession plan? Follow these steps:  

•  Start early. Begin the process at least five years before the transition or sooner. This gives you more options and flexibility.   
• Communicate clearly. Share your vision, goals, and plans with your family, successors, managers, and advisers. Listen to their feedback and concerns.   
• Develop talent. Find and train potential successors within or outside the family. Set clear criteria and methods for choosing and assessing them.   
• Contingency plan. Prepare for unexpected events, such as death, disability, or resignation of the leader. Name an interim successor and define their role and support.  
• Consider the non-farming children. They may not get an equal share of the farm, but they should get a fair deal that does not harm the farming business or cause family conflict.  
• Seek professional support. Succession planning involves legal, financial, tax, governance, and human resources issues. Experts can help farm owners deal with these issues and offer objective advice.  

Succession planning is not just a ‘nice-to-have’, it's a ‘must-have’ for New Zealand farmers. It's the best way to secure the future of your farm, your business, and your family legacy. Don't wait until it's too late, start planning today. You'll be glad you did!  

We have the expertise to help you – contact us now to discuss how you’re planning the future of your farm.