Succession planning

Developing a succession plan

A succession plan details how the property owner intends to leave or transfer the business ownership and management upon exiting. Factors underpinning the need for a well documented and clearly communicated plan include:

• Tighter margins and higher land values.
• The potential for conflicting expectations among family members.
• The growing complexity of laws that impact on the transfer of assets.

Points to remember

A successful succession plan should consider the business as a whole and involve all stakeholders. This will reduce problems relating to inheritance, management and ownership. The process and acceptance of the final plan can be assisted by:

• Making sure all involved have the opportunity to express their views.
• Developing a collective future vision for the business to ensure all understand what is expected and how it will operate.
• Separating family and business.
• Establishing a process to resolve any family disputes.

The succession planning process

Every succession plan will vary depending on the owner's financial position, type of enterprise, family situation, business objectives, age and health. There are, however, several common steps:

1. Preparation and gathering of background information

It is useful for everyone involved in the planning process to have a clear understanding of the property's current position, including:

• Family - indicate the age and relationship of everyone in the family.
• Farm - provide a farm map and short history of the property.
• Business - list all businesses involved in the property, their structure and the people involved.
• Financial position - prepare a statement listing farm and personal assets and liabilities.
• Other factors - list other factors that are unique to the family, farm and business that need to be taken into account.

2. Establishing objectives and priorities

The current legal land owners must consider personal goals and visions. Key points to consider may include:

• What do the land owners want to happen to the farm?
• Do they want any future involvement?
• What are the owner's future financial needs?
• What are the needs and desires of the children?
• What are the financial needs of the children in the future?
• What are the objectives and intentions of each family member in the future?
• What are the tax implications of the decisions?

3. Consulting interested parties

Everyone with an interest in the property should, at some point, be involved in the consultation process. Holding a family meeting or a series of meetings can assist in the consultation process. If holding a family meeting, it may be useful to involve a professional facilitator to negate any conflict that may arise during the process.

A successful first meeting will result in:

1. All parties being aware of each individual's position and feelings toward the enterprise.
2. A broad future direction.
3. A clear list of actions and timeframe that are required to formalise decisions.

4. Investigating options

Once the direction of the succession plan is set, investigation into various options should be considered. It will most likely be necessary to employ professional advisors to ensure the following issues are covered:

• Financial and personal implications of the transfer of ownership of the business.
• Taxation implications.
• Provision for active and non-active family members.
• Retirement income planning.

5. Decision-making

Often the way a decision is made is just as important as the decision itself. If everyone with a direct interest in the business is consulted and included in the process, they are more likely to be comfortable with the outcome.

Once discussed and agreed, it is useful to list tasks for actioning and follow up to ensure that all have been informed and understand the decision. Clearly communicated and measured time frames can assist in providing structure and clarity for the succession plan.

The final step is ensuring that the plan is put into practice and reviewed every couple of years or when a significant change occurs.

More information

• A Guide to Succession: Sustaining families and farms produced by the Grains Research and Development Corporation (GRDC) is available by phoning 1800 110 044.