Succession Planning
Rationale
Any business, whatever type needs to look to the future, to judge risks and opportunities certainly, matters concerning the viability of the enterprise, but also the ‘endgame’. Work to build to sell, to hand over to family or others or just not to go broke. Many business owners consider their business as their ‘superannuation’, most do not turn out to be that, certainly not to the value that will be needed. Many business owners do not even draw a decent wage, many reinvest into their businesses, the equity of the home, just to remain solvent.
https://tradingeconomics.com/australia/bankruptcies#:~:text=Bankruptcies%20in%20Australia%20averaged%20667.29,Australian%20Securities%20and%20Investments%20Commission
Bankruptcies in Australia averaged 667.29 Companies from 1999 until 2024, reaching an all-time high of 1442.00 Companies in November of 2024 and a record low of 192.00 Companies in January of 2021. source: Australian Securities and Investments Commission.
60% of businesses in Australia will fail within their first three years of operation, with 20% of businesses failing in their first year of operating. Whilst the exit rate of businesses in Australia is extremely high, developing an exit strategy for your business can assist in minimising financial detriments.
November’s numbers confirm Australia has had 12,405 insolvencies in 2024. This means with a month to go 2024 is already the worst calendar year for business failures on record.
Those statistics apply to small businesses, the data is somewhat the same for farms of all types.
FARMS – The scenario is impacted not only by farm practices but external factors such as weather, pestilence, tariffs and so much more. Given that many farms are family-run, the male of the family is often, the main decision maker, if the farm is not prospering, the farmer will have little chance of finding a way out. If the farmer is running their enterprise in a ‘control and command manner’, then others within the family will not be connected as much, and can be alienated, – new ideas not recognised. So while the matter of succession is very much an important topic, the very matter of solvency can be an immediate concern.
Will there be anything but debt left to inherit – to fund the farmer’s retirement? So, a succession plan is necessary as it may be needed at any time – the farmer becomes ill, deceases, marriage breakup etc. A clear understanding of the actual enterprise situation must be established as a starting point to manage forward and then, incorporate into a succession plan.
The farmer will need to consider their operating style, and the way they interact with. Not only members of the family but all other stakeholders. The relative skills each person has, that are relevant to the needs of the property, and the business. Establish gaps and what can be done to bring more expertise into the thinking, right now, then leading into the tomorrow of the succession plan.
Family members and other relevant stakeholders (who may be part of any succession plan) need to understand their own pathways to gaining experience, further knowledge etc to put them in a place that will support future plans. Indeed their own inclination to wanting a farm life and all the responsibilities that entails – a myriad of decisions.
Accountants and solicitors, financial planners, bankers, property managers etc all factor into this decision-making process BUT in the past have shown little interest in helping the farmer look to the future, more often than not focused on today and yesterday. If this wasn’t the case, then farmers would have succession pans and most do not.
Accessing an external experienced thinker is a great way to proceed. Putting emotion aside, past relationships etc gives the farm a chance to be objective and establish sound thinking for a plan that is not only able to be implemented but will sustain.
The evaluation of the business – commercial or farm, should be a priority for everyone – not undertaken means surprises will occur and then it is often too late to take appropriate remedial action.