Steps for family business and farm succession planning

Family businesses are a cornerstone of the global economy, often outperforming non-family corporations in terms of success, resilience, and innovation. However, the transition of leadership from one generation to the next, known as succession, is a complex and deeply personal process, especially for farming businesses. This article delves into the key steps and considerations for achieving successful family business succession.

The foundation of any successful succession plan is a profitable and well-managed business. Without profitability, the options for succession are limited. A sustainable business opens up numerous possibilities for the future, ensuring that the next generation inherits a thriving enterprise.

Furthermore, a well-managed and profitable business makes it easier to agree a value and achieve financing, two of the main issues that can slow the process down.

Effective communication is crucial in family farms. Successful families often have a clear vision for the business and involve all members in discussions from an early age. Creating an environment that fosters open and honest conversations helps align individual roles with the overall vision of the business.

In family farms, communication is constant, but not all conversations are effective. It’s important to manage crucial conversations effectively, ensuring that all affected parties are included and that emotions are channelled constructively. Structured, meaningful communication is key to achieving a shared family vision.

Family history and generational differences significantly influence how individual family members react to changes to the farm. Recognising these factors can help broaden understanding and improve communication across generations.

Your children’s partners can have a strong influence on the next generation’s involvement in the farm. They can introduce new perspectives and ideas, helping to improve the business and support the succession process.

To overcome the natural tendency to avoid difficult conversations, it’s helpful to formalise the process. Scheduling meetings, setting agendas, and involving impartial facilitators can help ensure that discussions are productive and lead to actionable outcomes.

A written succession plan is essential. It provides a roadmap for the transition, involving family and professional advisers to set clear goals and measure success. This plan should separate and define the roles of ownership, management, and governance, allowing for a gradual transition and protecting the interests of all parties involved. A formal plan increases the probability of a successful change of ownership and ensures that the business continues to thrive.

The outgoing generation must recognise that the skills and systems that grew the farm to its current stage may not be the same as those required for future growth. Encouraging the next generation to bring new ideas and approaches is essential for continued success.

In many farms, ownership, governance, and management roles are often undefined and interlinked, leading to simultaneous role changes. Separating these roles can allow for a gradual transition, enabling outgoing members to step away from daily management while still maintaining ownership and contributing to strategic planning.

For many farm businesses, the current ownership and management model below is typical, but is restrictive for growth and long-term survival, as it relies on one or two individuals to handle both day-to-day operations and strategic planning.

Separating the roles of ownership, governance, business management and day to day operations opens up many more options for successful generational transition. When roles operate separately, succession in each role can occur at different times.

The diagram below shows how defining ownership, governance, management and operations allows family members to step in and out of the business at various levels.

Advisers, such as lawyers, accounts and consultants can play a crucial role in the succession process. They can help families navigate the complexities of succession planning, provide independent perspectives, and ensure that the transition is smooth and successful. The right advice at the right time is critical to success.

1. Look at your business profitability – is your farm in good shape? Is it a business you would want to step into right now?
2. Talk to your family – whether it’s individually or all together, get an idea of what your family’s thoughts are on the farm and their future involvement.
3. Decide what you want from the business in the future – could you take a back-seat role while someone else runs the farm? Do you want to continue to stay active in the business or are you all in or all out?
4. Talk to others – seek out other farmers who have gone through succession and professional advisers who assist with succession. Involve your ANZ Relationship Manager – they can connect you to people in your local network.
5. The right solution is the one that’s right for you and your family – start with an end-goal in mind and work out the steps needed to get you and your family to where you all want to be.

Succession in a family farm is a complex, but essential process. By building a sustainable business, fostering strong communication, involving advisers, and developing a formal plan, families can ensure a smooth transition and continued success for future generations. The key is to start early, involve all stakeholders, and remain flexible and open to new ideas. With the right approach, family farms can pass the baton successfully, preserving their legacy and achieving long-term growth.