Succession planning – the seeds of future security
Succession planning within UK agriculture has often been viewed as a difficult, thorny topic. All too often, it gets left at the bottom of the ‘to-do’ list – or just isn’t addressed at all. Oliver McEntyre, our National Agriculture Strategy Director, considers the personal and business risks of not having a succession plan, and the steps you should take to put one in place1.
Personal and business risks
On a personal level, not having an agreed, formal succession plan can cause family divisions that last a lifetime.
On a business level, there can be significant repercussions if a senior partner passes away without planning for the next generation. It can result in split objectives among those left to run the farm or different ideas for the future direction of the business. Sometimes, relatives who haven’t been part of the farming business could start looking for a share of the asset base as an inheritance. Given that farming assets tend to be valuable, having an incorrect structure for passing them on can also result in tax risks to the business, especially with farming businesses that have diversified.
All of this adds up to one thing – a risk to the business, something all generations and family connected with the farm surely don’t want to see.
Protecting your farm, home and pension
In a hugely committed and practical industry, where the business asset is also often the family home and hub, senior partners wishing to carry on is very common. After years of hard work and commitment, it can be very hard for them to take a back seat, let alone retire completely.
It’s also often the case that many senior farming partners see their ‘pension’ as the farm and the business, so they might lack a plan for their pension and savings. Thirty or forty years ago, a farming business could easily provide for two or even three generations. In the modern farming world, with its narrow margins and volatile markets, this is often no longer the case.
Very often this means the succession of the business remains unplanned for, because what lifelong farmer wants to have a conversation about not being able to work as hard as they have in the past? Not to mention the potentially difficult conversations with the next generation – who could be in their 40s or 50s – or with siblings who don’t work on the farm, but may feel they should still get a share of the assets.
An industry-wide issue
To better understand the agricultural sector’s approach to succession planning, we conducted our own research into the issue a few years ago. We found that
- 44% of farmers had no formal succession plan in place
- Of those 44%
- 24% had no plan at all
- 20% had a vague idea but nothing formal
The main reasons farmers gave for not having a succession plan in place were
- No one to pass the farm on to
- Haven’t spoken about it
- Don’t think they need one
For farmers with a succession plan, we found
- Over 70% of preferred successors were sons
- 24% of farmers hadn't actually spoken to those they’d involve
- Of the family members taking over farms, around 25% had no current involvement in the running of the farm, but they wanted to
- Of farmers looking to hand over to sons/daughters/family, 40% hadn't yet got them fully involved in the running of the business and the farm on a day-to-day level
- Over 20% of farmers admitted that their successors would probably quite like to be more involved than they currently are
Regular contact with our clients suggests that these underlying trends haven’t changed significantly. So succession planning still remains a critical issue that the industry needs to consider, especially as Defra2 recently reported that the average age of a farmer in the UK is 59 years old – and this is rising year by year. In reality, this is the average age of the senior partner initially named on forms and documentation. But this industry remains one in which senior partners tend to carry on being the head of the business far beyond the usual retirement age.
The importance of professional advice
While communicating with all involved family members is key, you also need to seek professional advice. This should include accountants (who can ensure the most tax-effective passing of assets), solicitors (to make sure everything is legally compliant), business consultants (to discuss the future operation of the farm) and, of course, your bank (to ensure your banking requirements are met).
Succession planning is likely to require a number of meetings, many of which could be emotional and sometimes even fractious. That’s why it’s vital to have a completely independent party chair the meeting. Their job is to ensure everyone has the chance to voice their opinions and discuss proposals and, most of all, to keep the process moving with all interested parties involved.
Developing a succession plan doesn’t have to be a trigger for impending retirement. Senior partners can remain involved in the business as a director of farming. This means they won’t be carrying out the everyday work, but they’ll still have input into the overall direction of the business while sharing their lifetime of experience and knowledge.
Steps for your succession plan
- Have frequent, open discussions with all family members involved, or potentially involved, in running the business, including siblings who may not have had any input on the home farm. Use an independent ‘chair’ who can keep the process moving and keep everyone on board with it.
- Make sure you have good financial planning, both for the older generation and for siblings who don’t work on the farm. They may feel aggrieved if they see all the business assets heading to other siblings.
One of the key sticking points for retirement – and therefore succession – is a lack of pension provision. So any succession plan needs to include pension provision for the next generation, so it doesn’t become an issue again in 30 or 40 years’ time.
- Formalise the plan and make sure everyone has agreed to it.
- Involve your successor in the business as much as you can, ensuring your knowledge and expertise is passed on so you’re prepared for whatever life throws at you.