Succession planning special: Top things to consider to make a success of succession
Fear of causing conflict can make starting the succession conversation difficult.
Alex Black spoke to Martyn Dobinson at Saffery Champness, which has created a model farm scenario to help you guide your way through the process.
Alex Black
Failing to plan properly for succession can have ‘catastrophic and unexpected consequences’, but almost two-thirds of family farms do not have a succession plan in place.
Accountants Saffery Champness said with the average age of the UK farmer about 60 years old and increasing, the issue of succession has never been more important.
It highlighted it was too easy to get engrossed in farming activities and neglect the future of the business and a succession plans should be made as early as possible.
Discussions around succession can be highly emotive and stressful, and many claim the biggest barriers are the fear of creating conflict.
To avoid alienation and conflict, it is important to include everyone in the process and consider everyone’s needs and requirements.
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Important
Martyn Dobinson, partner at Saffery Champness, said: “The most important thing is to have a clear and understood longer term plan which everyone is working towards.
"An understanding of what the assets are, who owns them, what they are being used for and by whom, is critical, as well as knowing what each family member’s needs and wants are.”
MacDonald Farming, a scenario based on model farm Dane View Farm, has been created by Saffery Champness to look at the impact of decisions on a farm business.
In the model farm scenario, John MacDonald, a 58-year-old third-generation farmer, operates a mixed family farming operation in Shropshire through a combination of a traditional partnership and a limited company.
His youngest daughter Elizabeth is entering the final year at Harper Adams and has been studying succession.
She has seen some of the issues raised in her studies first-hand, and has raised succession with her father.
Her elder sister, Mary, has been a partner and shareholder in the farming businesses for a number of years.
As the youngest family member actively involved in the business, Mary has seen her enthusiasm, energy and ideas for the business somewhat curtailed, particularly by her grandfather, who, although less active and increasingly suffering from ill health, maintains a controlling influence over operations.
Struggle
The farming businesses have struggled in recent years, becoming overly reliant on the Basic Payment Scheme (BPS), with delays in the receipt of BPS leading to significant cashflow issues.
Their brother James has no interest in farming at all, with John always telling his daughters ‘one day, all of this will be yours’. But Elizabeth has started to question what and how.
She asked her father what each family member would be doing in the business in the future.
But John had questions about tax and inheritance, as well as what he would leave to his son.
Top things to consider
- What do family members want and need from the business?
- Are identified successors on board and do they have the necessary skills and experience?
- What part will everyone play in the business and is everyone being treated fairly?
- Where is the business heading?
- What are the assets and who owns them?
- What reliefs might be available for Inheritance Tax and Capital Gains Tax?
- What is the likely timescale?
- How will anyone retiring fund their retirement and where will they live?
- How does the plan fit with people’s wills?
- Who will the family be using as professional advisers?
ABOUT THE FARMING BUSINESS
MACDONALD Farming, a model mixed farming business, was developed by Saffery Champness, in association with Farmers Guardian, to bring to life the impact of various potential farming scenarios.
Dane View Farm, Shropshire, is run through a partnership and limited company by John MacDonald.
John’s wife Barbara, his largely retired father Albert and his daughter Mary Williams, all work in, and have varying stakes in, the businesses.
John and Barbara have two other children: James, who manages his own business from one of the farm cottages; and Elizabeth, who is studying rural estate and land management at Harper Adams University.
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