Commonwealth Bank’s General Manager Regional Agribusiness Banking, Dominic Westendorf, said succession planning is a really critical issue for producers, the majority of which are family-owned and operated businesses.
“Farm succession planning is one of the most important aspects of farm management, but it can be challenging to know where to start,” he said.
“Succession planning is all about safeguarding your financial security while looking after the next generation and securing a strong future for the farm.”
Mr Westendorf shares important considerations for getting it right from CBA’s experience supporting Australian Agribusiness over the last 100 years and ahead of our spotlight at Farm World 2024.
1. Start early
Succession planning is not a one-time event and can take many years. On average, succession plans for the family farm will take 12-24 months to execute, but all too often this journey starts when business owners are ready to retire.
Mr Westendorf said, “Planning ahead can go a long way towards ensuring the transition is smooth when the time comes to move on or pass the business on to family members. Unexpected events can unfortunately happen at any time, and a succession plan will also enable you to transition out of the business quickly with peace of mind.
“At a personal level, planning ahead also enables you to manage your private wealth, taxation and retirement plans."
2. Communicate
Establish well ahead of time who is interested in assuming the ownership of the business and consider how you plan to manage the expectations of family members. Have open conversations about succession with everyone who will be impacted, not just those on-farm who are likely to continue the business.
“Clarify what your future role will be,” Mr Westendorf said. “For example, you might retain some level of ownership but step back from everyday management, take a lesser role with fewer days or decide to make a total exit on a particular date.”
Family members may also need time to prepare for their new roles. A transition period in which the person receives strong guidance and support can ensure the new owners are thoroughly prepared and set up for success.
“Ensuring the transition is seamless is also important to those external to the business, including customers and suppliers, and helps them to adjust to any new faces or ways of doing things.
“All these issues should be discussed and documented,” Mr Westendorf said. “Where there is more than one family member seeking to be part of the business’s future, a fair transition of ownership and clearly defined roles will be critical to the ongoing success of the business.”
3. Understand your business’s financial strength
Succession planning can give you certainty that your farm business is on a solid footing with clear plans for the future. The starting point must be the condition of the business at the present moment.
It’s imperative to have a clear understanding of the business’s financial strength. Rigorous accounting that accurately reflects the performance of the business over its years of operation not only helps with the transition, but also enables family members to understand areas of current success, potential growth and future capacity.
“Keep your business accounts in good shape and be clear in your growth forecasts where the opportunities for the future lie. Make it easy for the next generation to consider future opportunities”, Mr Westendorf said.
4. Seek advice and external expertise
Taking your next step in life, and successfully transitioning out of your business can be complicated. There may be issues such as confusion or conflict over new roles, plans or quality of information.
There could also be complexities arising from your need to extract personal wealth from the business to fund retirement or tax implications relating to transferring assets for succession.
To support your decision-making, seek expert advice from professionals such as your accountant, financial advisor, lawyer or business advisors and be sure to get in touch with your bank to understand what support can be provided to help achieve your goals for succession.
1 ABARES Farmland Price Indicator - DAFF (agriculture.gov.au)
