Harvesting Legacy: Affordable Farm Succession Planning for Long-Term Prosperity
As interest rates rise again and long-term financial planning is more important than ever, let’s look at what you need to think about if you want your farm to go onto the next generation.
Many family farms have been around for generations, and are the central influence on the values, purpose and history of a family. While you may want this legacy to continue, it’s important to start thinking about succession planning early and understand your farm affordability.
When we work with a family at SproutAg, there are some key questions that we need to look at to begin helping you with your succession planning:
- Does your family want the farm to continue onto the next generation, and is the next generation prepared for this?
- What can the farm afford to pay existing owners and non-working family members?
- What lifestyle do the existing owners require post-retirement and how much money is needed to fund this?
- How much can the farm actually afford and what is a sustainable debt level for you?
We often see that the family leaders or existing owners are not clear enough around their intentions and desire to ensure that the family farm continues onto the next generation, or haven’t considered long-term planning for this transition. This is based on their own core values and is up to each individual family, with no right or wrong decision. It is really important that the family starts to assess “farm affordability” in a sustainable year in year out scenario. This means understanding the maximum debt that the farm can take on to remain sustainable while being able to run efficiently.
So, how does my family’s farm affordability affect me?
Existing Generation: Get Advice on Farm Affordability Early
SproutAg recommends you seek guidance from a professional to understand your farm affordability using a range of different tools, as this will help you, as the existing generation running the farm, to understand what you can and can’t do financially. You also need to know what you want and the type of lifestyle that you require into the future if you are to exit the farm partially or completely. During this process, SproutAg will run audits of five years of cashflow on your personal expenditure so that you can properly understand your own expenses outside of the business to identify what this lifestyle would cost you. This can take several meetings to help you align your financial planning with your long-term goals, however this is vital for understanding farming affordability and effective succession planning.
Next Generation: Be Part of the Team & Understand What’s Expected
If you are the next generation set to take over the farm (i.e. your parents are currently running it), it is just as important for you to understand the farm affordability so you can make an informed decision on what your future might look like. Circumstances may mean that current stakeholders are being compensated at a higher level than is sustainable, where ultimately the farm has to be sold in years of lower commodity prices or rainfall. This can be devastating to the family if the whole intention was to retain the farm in the family. As the next generation, you need to be able to have clear insights into your farm affordability and how to run the farming business at a sustainable level so that you can continue it on.
Involve Non-Working Family Members & Help Them Understand Farm Affordability
At SproutAg, we find that often the non-working family members on a farm can feel quite negative towards the next generation taking over the property. In reality, there are usually a lot of challenges that come with gaining equity in the farm such as tenure, inability to sell and often debt to compensate australian white suffolk conference family members. Once the non-working family members have a robust understanding of farming affordability and see that the financial position is often not as strong as originally perceived, it can help them gain a greater understanding and perspective to improve family relationships.
