Succession planning has become more complex and more important than ever, yet farming families are still largely failing to have the necessary discussions and adequately prepare for the future.
As a result, many are finding their options are limited when it comes to retirement and the transfer of ownership and control.
That’s the finding of a new report, Australian Farming Families: Succession and Inheritance, and the result of a research collaboration between business advisory firm Chapman Eastway and Charles Sturt University (CSU).
Key factors addressed in the report include intergenerational change in attitudes towards family business ownership and how this will affect succession planning, as well as implications of an ageing agricultural workforce and the consequences of inadequate succession and retirement planning.
Sean Cortis, Chapman Eastway Principal and CEO, says some 350 farming families across the country contributed to the report which highlights many critical issues farming families need to consider when developing a farm succession plan.
“The major findings of the report pivot around significant social and intergenerational change in rural Australia,” Mr Cortis said.
“Farming has changed significantly over the past 20 years, with younger farmers adopting new models of business ownership and displaying greater willingness to engage in discussion and formalised business planning as well as growth in the likelihood of divorce and the prevalence of non-traditional family structures.” He believes farm succession planning needs to move and adapt to those changes.
“We find younger farmers are increasingly looking towards alternative models of business ownership, like company structures, family trusts or flexible lease arrangements. They are questioning the relevance of traditional, often rigid ownership structures and seem to be valuing the relative advantages of newer business formats, particularly as platforms for investment, capital growth and as a way of providing ‘fairer’ treatment of children.
“Additionally, there is a noticeable increase in the willingness of younger generations to engage professional consultation in the planning process.”
Mr Cortis said the report revealed that more of the younger generation is pursuing further education or taking a ‘professional detour’, such as a tertiary education or a trade, with the average age of those returning to the land being 27 years.
“Australian farms are generally not large enough to sustain more than one family, and we know that two thirds of successors are expected to work off farm to supplement farm income.”
The study found that those families who fail to adequately plan for succession and retirement are more likely to end up relying on the sale of farm assets to fund retirement and experience family conflict, as a result of misunderstandings and mistaken expectations.
Adam Steen, Professor in Finance at CSU, says that the report provides helpful recommendations to the agriculture sector to support the handover of farm ownership.
“More than half of Australian farmers are over 55 years old, with the majority expecting to retire in the next 15 years, and that has significant implications for government policy and the future productivity of Australian agriculture, particularly if robust succession plans are not in place.
“The current generation of farm owners remains largely reluctant to retire; a harsh reality when coupled with the fact that only 54% of families surveyed possess a formal business/succession plan.
One of the biggest issues highlighted is an underestimation of the ease to which sufficient funds can be accessed for retirement as well as a significant lack of understanding of the legal, financial and taxation implications of transferring farm assets.”
The report makes recommendations to farming families approaching succession and emphasizes the need for traditional professional services such as legal and accounting to be supplemented by communication and mediation as parts of packages offered to farmers.
Want to know more? A full copy of the report is available here (PDF).