Poor communication, an incorrectly structured farm business and a reluctance to talk about it are the most common challenges facing farmers trying to navigate the succession process, a Kellogg Rural Leader says.
Overcoming these challenges includes starting conversations around succession early and making sure the farm business is properly set up to enable succession, Ross Neal says.
Neal wrote a paper titled “Achieving successful family farm succession in the New Zealand dairy industry” as part of the Kellogg Rural Leadership programme last year, interviewing farmers who were perceived to have done succession well and some independent succession facilitators to gain their insights as well.
One of the main challenges he found is a general reluctance to start the succession process. “A lot of farmers are unsure how to go about it, they weren’t that clear on the desired outcome and let’s be honest, succession can be quite confronting. ‘Succession’ is a word that has a sense of finality about it.”
The older generation may also be reluctant to start because they might not want to put pressure on the children.
They might want to let them leave and have a life outside of the farm and let them make up their own minds, he said.
Neal’s study also found a lack of clarity especially around what the parents and the children wanted.
“Start discussions with family around succession early. It is never too early to start these discussions and it is important to involve children from a young age in conversations about the farm business in general.”
Some of the farmers he interviewed included their children in the meetings when their rural professionals, such as the bank manager, came.
“So from a very young age those children understood that the family business was quite transparent.”
The most important people to be considered in the succession plan are the parents. They need to understand what they want and prioritise this over trying to please the rest of the family as well as ensuring they are comfortably set up as they step back from the farming business, he says.
The older generation should think about how their business is structured and whether it is set up in a way that enables succession. They, along with the younger generation, should look at ways of building up equity outside the farm business.
“They might not be coming into the business straight away. So, we should be encouraging our younger generation build up as much equity as possible.”
If they are working on the farm, it is very important they are paid a market-related salary, not minimum wage, to allow them the opportunity to build up that equity.
One of the main takeaways from his research was that if there is any uncertainty about succession or how to go about it, get someone in to help that knows what they’re talking about – an experienced succession facilitator.
“These experts can not only help with creating the succession plan, they are experts at facilitation and communication between family members, which is also important.”
Neal is an agribusiness manager for Rabobank based in Whangārei. From the banking industry’s perspective, a lack of a succession plan is seen as a significant risk to a farm business.
“If you have got lending against a business and something happens to the key people that operate the business, it is important to have a plan in place to carry on that business to ensure the lending can continue to be serviced appropriately.
“You need to have a viable business for succession to be able to happen. This is a prerequisite.”
It is therefore important for farmers to understand their numbers and the different factors that can influence these numbers.
This article first appeared in the November edition of our sister publication, Dairy Farmer.