Why agribusiness succession planning should start now
Generational wealth transfer can be a challenge for any family but on the land the stakes can be even higher. Here, expert advisers reveal why it’s never been more important for agribusiness owners to start planning for the next generation.
Mission statements, business charters, board meetings and offsite planning days. Sounds like corporate Australia? These days, Australian family farms are increasingly turning to such ‘big business’ markers, says Mark Scanlon, whose company, Next Rural, specialises in transition planning in the agribusiness sector.
The increasing popularity of these frameworks and tools is driven by a huge rise in rural property values, increasing education levels and the desire to grow and protect the wealth built by generations.
Incorporating these business decision-making supports can help foster a collaborative environment, where all members of a farming family get to determine the business’s values and beliefs, along with such operational aspects as environmental sustainability. This might sound like the over-engineering of a simple succession plan, but experts say generational transition is taking on greater levels of sophistication – and importance – as asset values increase.
Australian agricultural land has soared in value in recent years leading to a large number of property sales and substantial growth in the size of assets being transferred to the next generation. Financial advisers in the rural sector are also seeing more of the downside risks of incomplete planning, with wills and estates increasingly being contested.
Time is another factor – it can take between five and 15 years for farmers to achieve their desired wealth transition and succession outcomes. With the average age of Australian farmers being 58, and with some 20 per cent of working farmers over the age of 65, time is of the essence for many agribusiness families in terms of successful succession planning.
Expert help is critical, says Matt Briese, Director of Advice at JBWere, who works with agribusiness clients to manage and protect wealth through retirement.
“There’s a transition of significant wealth between generations in agribusiness,” says Briese, who’s seen a number of very large agricultural asset sales in the past six months, including many to consortiums and foreign buyers, attracted by the stability and value of Australian agriculture as an investment class.
It’s a big issue in agribusiness, where the main players are most often asset-rich and cash-poor. For farmers and their families, retirement requires more thought and planning due to the unique issues they face: the asset value is usually large; the transfer can involve multiple family members (and often others); and it can be emotional, with legacies of a lifetime or generations. Not only must families aim to avoid confusion and conflict around inheritance, with the vast majority of farm businesses passing to the next generation they must also plan for the successful transition of their business to younger family members.
Conversely, retirement may come after the sale of the farm, and a large amount of capital will need to be protected and often apportioned to the next generations, some of whom will have given sweat for equity in the business over a number of years.
Issues at stake include the transition of management and decision-making responsibilities, the transfer of the actual business and its future structure, the property transfer and ultimately the retirement of the outgoing owners.
“If you don’t address the transition plan then the next generation might not stick around,” Scanlon warns.
He adds that family boards are also gaining in popularity and typically include outsiders such as advisers and accountants. They involve the next generation in decision-making before they take control and can allow ‘Mum and Dad’ to stay involved even as the property and business transition to the next generation.
“It’s basically a great framework to run a business on,” he continues. “All family members are involved in a family council and this allows for a smoother transition of roles.”
The devil’s in the detail
Briese agrees on the need for detailed wealth protection and retirement planning. Poor communication can be one of the main risks in agribusiness enterprises, and the formalisation of decision-making and knowledge transfer is critical to good business and personal outcomes, he says.
“Nobody likes surprises in business and generally this is avoided through communication and planning. Similarly, these attributes are vital for retirement,” he adds.
Briese suggests there is merit in agribusiness owners engaging an adviser to help them plan for retirement. Planning for those in their fifties or sixties may include reviewing how assets are structured, as well as using entities like superannuation funds to achieve desired outcomes.
“Handing off an asset you’ve worked your whole life for to someone else to manage is a huge leap of faith and there’s a huge element of trust,” he says.
That trust carries over to those professionals helping plan a succession. And while geography is a unique challenge to building relationships with rural clients, Briese and his colleagues travel extensively for in-person meetings.
Julie Rynski, NAB Executive of Regional and Agribusiness, adds that bankers can play a role in introducing agri business owners to advisers.
“As the largest agri bank in Australia, we have longstanding multi-generation farming families, and this is an important issue,” she says
“Ultimately, with the stakes so high, sound planning now can plant the seeds for a satisfying succession when the time to hand off arrives.”