Planning out profitable farms

Planning out profitable farms


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ProAGtive director Isobel Knight said succession planning took time.

ProAGtive director Isobel Knight said succession planning took time.

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WORKING with families towards a single purpose does not happen by accident, says ProAGtive director Isobel Knight, and all too often families avoid succession until they are forced to as a result of a crisis.

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WORKING with families towards a single purpose does not happen by accident, says ProAGtive director Isobel Knight, and all too often families avoid succession until they are forced to as a result of a crisis.

"Unfortunately it is often a tragedy or the death of a linchpin family member that triggers a crisis," she said.

"If you were to ask families what matters most, it is not their bank accounts or farm, it is actually their family."

Mrs Knight said one of the common results from clients' aptitude tests was strong production, marketing and innovation skills, but many also had poor financial acumen and weak communication, strategic planning, remuneration and people management skills.

"When you think about the family business, the people we are managing poorly are our family," she said.

Check out Isobel Knight's do's and don'ts of succession planning below

"So it is a sad indictment on us as business managers that we do not skill ourselves or seek expert advice and help in these areas. People do not value this enough and do not understand the impact until it is too late."

She said succession was not achieved in a day but a process that occurred over time.

"Of course it involves emotion; we are talking about the people we love the most, our land, the things that truly matter and our life's work so it is going to be emotional," Mrs Knight said.

You need a plan

USUALLY referred to as a business's greatest threat, succession if planned and managed well is your greatest opportunity.

Mrs Knight said the risk of conflict or disagreement could often discourage families from starting the process, however, planning through a business transition is pivotal to its continuity and viability.

"Succession planning is firstly about the transition of management so it is 'who does what when' rather than 'who gets what when'," she said.

Mrs Knight said if people were tackling succession better, more families would continue to farm and the industry would see the next generation entering agriculture younger as career choice.

"Agriculture would be enhanced by the benefit of doing succession planning because the transition of the younger generation would happen earlier and we would see the motivation of the older generation rise," she said.

"The process is not just covered in a will. It involves the transfer of managerial control, leadership, ownership and includes estate planning and the protection of the family wealth and business continuity."

Why is succession planning complex?

"You really do need a leg up from family to farm because it is such a capital intensive industry, so you need to get on with family and that takes decision making structure, commitment and effort," Mrs Knight said. "And we haven't done that well in agriculture."

The complexity of planning is due to the vast issues that need to be addressed while pre-empting what future expectations of the business and family will be, all while dealing with different individuals.

"The whole business needs clear goals for the future, including what is needed for mum and dad to live the rest of their lives or retire, how much to educate the next generation, grow the business and retire that generation – these are real questions that every farm faces," Mrs Knight said.

"We have limited windows to do things, if we chew up time and leave this unaddressed, we are chewing up the opportunity to do it properly."

It is a critical task any farmer who wants their operation to endure for future generations, will face.

"Effective succession planning depends on open communication, good will, respect and a desire to keep relationships strong among all family members," she said.

The need for qualified advice is critical as the expert will need to facilitate contentious topics in a professional manner.

"Anyone who says there is not conflict is dreaming," Mrs Knight said.

"It doesn't have to be unhealthy, negative and poor conflict, it is simply a difference of opinion.

"Going into an environment with differing opinions will need people who can actually deal with that."

The consultant should be qualified in facilitation, conflict resolution processes, communication process, business viability and how farms operate and understand estate planning, law and potential taxation issues.

"People think seeking help is a weakness, but it is actually a strength because it takes a lot of courage to get help from outside," she said.

Why it's worth it

BUSINESS can be up to 25 per cent more profitable as a result of succession planning, which Mrs Knight said highlighted the importance of having a clear business direction.

"A succession plan provides clear purpose where everybody is on the same page and there is a useful and supportive structure, that is measurable on the bottom line," she said.

Succession challenges arise from the two vastly differing aspects of family farming – the business objective to produce profitable products efficiently and the family objective that is to love, care and provide emotional support.

"It is inevitable that without understanding these two diverse aspects, issues will arise," she said.

"The first step is understanding these differences and the second step is to acknowledge and appreciate where each member of your business is in their life cycle as this will be having an underlying impact on their effectiveness at work."

One of the initial questions asked when supporting families is to provide a job description of the key positions on the farm before looking at the packages attached to that position.

"This is when we separate inheritance from management and labour," Mrs Knight said.

The conversation

INITIATING the conversation is tough, but not talking about succession makes it even more challenging down the track.

"We are seeing young people wanting to ask about the family's succession and find it difficult because, maybe they feel grateful for an opportunity and therefore don't want to upset anyone," Mrs Knight said.

"They don't realise that if they don't have these conversations upfront it leads to conflict and frustrations down the track.

"Left unaddressed these difficult conversations turn into little hand grenades and can blow up otherwise successful family businesses."

In business and among family members there needs to be forums and platforms for effective communication, Mrs Knight said, so business issues do not become personal attacks on individuals.

"Conflict is a healthy ingredient to any progressive business, how it is handled and managed is the key to positive change and there would not be a family or business we work with who don't experience some form of conflict on their journey of successfully transitioning their business," she said.

"The next generation may need to initiate the conversation and it ought to be in a calm and considerate manner, rather than blindly bowling in.

Instead of blindly thinking that everyone would be alright, be upfront and pragmatic because retrospective grief is difficult. Conversations could begin with posing the question – 'how will this business progress over time'."

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