The importance of farm succession planning

However, an Exeter University survey for NFU Mutual suggests less than half of farmers have formal plans in place for who will run the farm if or when they step down.

The statistic is worrying, especially considering that 27% of 688 farmers surveyed had not discussed succession planning.

“People not talking about succession is the biggest barrier to overcome… There may be many reasons, from lack of an obvious successor to not wanting to upset family members, or a “we’ll worry about it when we have to” attitude.”

• Philip Dunn, Brown & Co’s head of agribusiness consultancy

Why is farm succession planning important?

Not having a clear succession plan can result in:

• Financial and logistical pressures when the time comes to hand over the farm

• Successors not being educated enough or having the experience to fully take over running a business

The NFU survey found that 43% of farmers plan to use farm income to at least partly support themselves financially once they stop working full-time. This could potentially put extra strain on businesses with already tight margins.

Business tenure also influences the succession planning process, says Andersons consultant Edward Calcott. Edward also helps run his family’s mixed Staffordshire farm, comprising arable, beef, sheep, turkeys and holiday lets. Tenant farmers’ main focus is business succession, whereas owner occupiers have the added complexity of land assets, which may need dividing among siblings.

When focusing on the business, a “bottom-up budget” is useful for identifying how much money is required to support those who are, or will be, financially dependent on it. Farmers should work back to see whether sufficient profit can be generated.

“In some cases, improvements to farm enterprises or new enterprises may be needed to generate extra income.”

• Edward Calcott, Andersons consultant

How to ease the succession transition

Openness and good communication are essential, and succession planning is an ongoing “succession journey” - not a one-off task.

Mr Calcott says gradually increasing involvement of younger generations, such as by handing over responsibility for an enterprise or bringing them into a partnership, can help the transition.

To ease the succession transition, it’s also important to:

• Start early, don’t wait until the situation forces you to act

• Convene a family meeting, including everyone with an interest in the farm

• Get an impartial third party to facilitate discussions, (e.g. friend, consultant)

• Keep written records of discussions and actions

• Listen to all opinions and ideas

• Consult specialists where appropriate (e.g. solicitors, financial advisors, accountants)

• Align succession plans with the legal Will

Producing management accounts for specific enterprises helps check financial viability. When handing over responsibility, older generations must be prepared to step back and let the new generation learn for themselves.

7 steps to farm succession planning - From Philip Dunn

1. Identify all existing assets (land, buildings, savings, investments, etc.) and who owns or has rights/claims to each

2. Understand how the business is currently operated, who has what roles and responsibilities, and what money is generated by assets or enterprises

3. Identify personal and business goals of the existing generation

4. Identify ambitions of the successor(s)

5. Agree a plan for how to achieve goals

6. Formulate a clear transition strategy for how the business, and any assets, will be handed over - considering daily operations, management, housing, income/drawings/pension requirements, tax implications

7. Review the pain regularly, at least annually, to reflect any changes, such as family circumstances (e.g. illness, births, deaths, marriages, divorce), policy/regulations, financial pressures, personal ambitions and business opportunities

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This blog post is based on an article from the spring 2021 issue of Crop Focus magazine. The magazine is packed full of insight, advice and research from the world of arable farming to help you grow the most profitable crops possible. Over 90% of readers find Crop Focus an interesting read – it’s free to subscribe so sign-up today!