Why Now Is the Time to Plan Farm Succession, Findex Says

Yet I believe it is crucial for continuity of production and the preservation of family-owned rural enterprises.

Right now a purple patch for farms presents the perfect time for proper planning. When there is liquidity, it can help ease the transition from one generation to another.

Of course, dairy has recently received a sizeable payout from Fonterra and, touch wood, most farm incomes are heading in the right direction. Yes, planning and preparing involves some costs, but when you’ve got positive income, it makes the planning a lot more appealing than when the cupboard is bare.

According to the Ministry for Primary Industries, New Zealand’s agricultural industry is performing strongly, with export revenue expected to rise 6%, driven by robust dairy and red meat prices, record or near-record production volumes, solid horticulture results and a favourable NZD/USD exchange rate.

When the going is good, options are available. Repaying debt, potential capital improvements, adjusting shareholdings or paying out retiring partners are all possibilities. The important thing is to look at the whole picture and decide how that money is best spent.

It has to start with a clear long-term goal though, along with knowing what’s happening next. That’s vital in knowing where you’re going.

I also know that even when conditions are favourable for an industry, they can change in an instant, particularly for an individual. Agribusiness includes a high element of risk as part of day-to-day activities, and the possibility of a debilitating accident or other incident causing unexpected retirement can never be ruled out.

According to WorkSafe New Zealand, agriculture employs about 5% of the workforce but accounts for around 25% of all work-related fatalities and serious injuries, and roughly 25% of serious acute harm.

This is part of why it is so crucial to have that plan in place. The earlier you start those conversations, the better. And the more often and thoroughly it is discussed, the better your opportunity to get the whole family on board.

I’m bringing succession up because Findex’s clients are doing so too. The Fonterra payout has sparked a lot of those conversations for dairy farmers, on top of the fact that dairying has had some pretty good years where debt is coming down.

This has helped spur proactive conversations about what’s next: Have you got children coming? Are you looking to sell the farm? Are you looking at some off-farm investments?

Along with planning for the next generation and sorting out inheritances, any tax liabilities and responsibilities must also be accounted for. These arrangements are by their nature multiparty. You’ve got the bank, the lawyers, and multiple generations of the families, and as advisers, we help balance the sometimes-competing interests of those various parties, whether on or off farm.

Through experience, I know these conversations are by necessity long term, but they should be a constant and dynamic engagement.

The best time to start the conversation, to start planning, was yesterday.

Even if it seems awkward or unpleasant, getting the plan in place now is far better than leaving it too late. You do not want to be in a position of rushing succession. Most rural businesses, and certainly farms, are worth millions of dollars, and coming up with that sort of money quickly adds unnecessary pressure in an already stressful time.

If farm fortunes are rising, there is no better time to ask the difficult questions and make a plan for what comes next.

• Rachel Fraser is Findex Accounting & Business Advisory Partner