Farm Succession Planning 1: When to get started?

Mike Krause:
Your Farm Business Podcast is guided by questions we get through social media from farmers, and in recent times, this has been more about farm family succession. So I've decided to put a series of podcasts together, covering these three key questions. Firstly, why is it so difficult for many families to get started with farm succession planning and when should they start? Secondly, what process works best for farm succession planning? And finally, how can we avoid some of the challenges in farm succession planning?
My next guest is Judy Wilkinson, who has been providing consultancies to families on farm succession planning, or more recently known as farm business transition. The mere fact, she has been providing these demanding services over the last 20 years means she has found many ways to help farm families. Judy is also involved in farming herself in Snowtown, South Australia, so understands the ups and downs of farming.
Welcome, Judy, to your farm business podcast.

Judy:
Thank you for the opportunity to speak with you, Mike. It's a pleasure.

Mike Krause:
You've got wonderful experience in this space. Has it been a good experience for you?

Judy:
Yes, mostly. And it is something that I was sort of encouraged to do rather than put my hand up to start with. I didn't sort of jump into it enthusiastically. I kept thinking, "Who would want to do that job?"
So it was a gentle transition in, and it is rewarding. What's rewarding is watching others manage their future, manage the process. So I go in really not to tell people what to do, not to give advice. Because I strongly believe that all farming families that are working together presently, have got the answers within themselves. They know their business, they know their people and sometimes just have difficulty getting the conversation going in the right directions. Because we work together and live together and do everything together, sometimes it can be difficult to have the critical conversations. So it's my job really, to go in and direct traffic.

Mike Krause:
Why do you think it's so hard to get the process started? Farmers often ask me this question and particularly from the younger generation.

Judy:
I think, because it is a crucial conversation, we're frightened of upsetting one another. We kind of make it a demon in our head to start with. We don't want to offend anyone. We don't want to promise something we can't deliver. We kind of make it hard really ourselves and often because we're not really sure about what we want or what we want for others or whether we're being fair... And we have this obligation that we really should be looking after all of our family equally. This is how the older generation might be feeling, and they can't see how it can be done.

Judy:
They don't know if there's enough, if it has a capacity or the capability or even the skills to let it happen. And sometimes we know when our families don't get on and we think, "Well, why would we bring them all together to have an argument? That would be ridiculous.”
So what I think is, although it doesn't have to be, it can be scary. And it is so much a work in progress that we start and then we find we have to change it all because somebody got married or because somebody had a baby or because somebody left. So, we kind of make it more difficult than it needs to be because we're worried about not upsetting everyone and wanting to keep the peace.

Mike Krause:
So the next question is really, when should we start with this process? Do we only start when mom and dad are looking to retire, or should we have started a lot earlier?

Judy:
No, a piece of advice, you should start today. That's for sure. But you also should have started when your children were born. So the conversations that you have over your kitchen table, or whenever you're together in the car together, those conversations have to be true and honest and transparent so that when you get to making, having to make conversations about really hard stuff, you know how to do them. So, sometimes we haven't had great teachers in this.
We have had, say for instance, a dad who has pioneered and got the property to where it is today on bloody hard work and sheer determination and working alone. And he might've worked with his father who was similar, just hard working and living remotely and getting things done. And so communication may not have been high on his agenda. He was making decisions on his own. And now it's going to include all these other people when actually he’s not a big talker himself. So, what I say is that you have to start having those conversations about, where are we going and what we're doing, even when there's crises and when things change so that you put off having these difficult conversations till later.

Mike Krause:
So really, it's a process then, it's not just one or two meetings. It's a process over a long period of time to work.

Judy:
Yes. So I encourage people with children that if you're going to treat them all fairly in your business and in your will, do it from the word go, don't start trying to do it when they're 17 or 20. So, if we're going to have a conversation about who inherits the farm, the message they'll get is if you tell them, oh, you're, you're going to be a farmer’s son, or oh, you're going to be a hairdresser. You know, then you've started the conversation already and they might only be five. You know, like if that's not what you're going to do, and that's not what you want to do, you don't start that conversation. Let's go back Mike, because you did ask when we should start, and it's definitely when there is a change in circumstance in your business or in your family.

Mike Krause:
Okay. So the grandson, the marriage of a son or daughter, or those sort of special, significant family events.

Judy:
Yes.

Mike Krause:
Sometimes there's ‘elephants in the room’. And I know as a facilitator for these family meetings, it's probably easier for a third party to ask those questions. What are some of the ‘elephants in the room’ that you come across and that you have to then help the family through?

Judy:
They're wide and various and often, and I agree with you. Sometimes it's better to have somebody managing that conversation other than yourself. So if you realize that you've got something going on in your family that you want to address, and you emotionally have something at stake, financially have something at stake, you have a higher motive involvement. It probably is best to get somebody who can be the mediator or can ask the questions that you'd probably like to ask without everyone feeling defensive. So I think that's a great idea. Get someone in. And it can be anybody who you trust somebody who everyone trusts. It's not rocket science. It's really someone who's going to be fair and equal, encouraging people to think about what they're hoping for and also work out what people's expectations are.
Sometimes people don't know what their expectations are until they aren't fulfilled. So, that can be a bit tricky. You need to get stuff above the surface and there can be a lot of stuff below the surface. And often a facilitator can dig around a bit to find out what's below the surface, cause it's best talked about if you can. And what I like to encourage people to do is to think about their business as a business, get that bit sorted and let their family be a family and get that sort of stuff out in that environment.

Mike Krause:
So separating the business from the family, although that can be difficult because a lot of times they are the one thing, because we live and breathe all the time.

Judy:
And often financially it's all a bit shady as well because the business does things for people financially, for family members. So you've got to decide how that works as well. So, the more business-like you can make it, I think it makes it a little clearer.

Mike Krause:
That leads me onto the next one. Business are made up of management and assets. Some people that I come across say, oh no, we've got to pass all that stuff off at the same time. And I say, no, it doesn't have to be. You can work through management transfer that separately to asset transfer, but I don't know what your take is on that.

Judy:
It just depends how the structures are set up a bit, Mike. I'm not a lawyer or an accountant, but I come across lots of different situations where there's trusts or companies, or companies in charge of trusts. And that can be quite complicated. One of the really important things is for everyone in the family to understand those structures. I have to confess, I think keep it simple sweetie is a really great way to go. But you know, like if there are complicated structures, the passing over of an asset, for instance, this can be done well before the will, or it can include one person or lots of people as beneficiaries. So, just depends what sort of structures they're in. These days though, when I do meetings and see how businesses often have the operating business in some sort of arrangement and then the asset in another and how easy it can be.
If that's the case, that you could hand over some responsibility and some ownership of something that isn't going to impact the asset, which is sometimes the land and buildings, and other things. So therefore, it can be done in stages, which gives everybody something for their work, they're getting something for all the work they're doing. But it also needs being mindful of the unforeseen, like a divorce or a death or whatever. So you can sort of manage more, but it does depend highly on how you've got your businesses set up. But I do think if you, everyone has got to be getting something out of it, so you can't expect the younger generation to work for nothing or minimal return or whatever. They want to know, and this younger generation, even more so than the ones I used to work with 20 years ago, want to know what's in it for them.
They want some sort of guarantee and they understand it could be a bit different by the time they get it, but they have to know they're doing it for their good and their family's good as well as for their parents and the greater family. So, there's a fair bit of payoff going on there, but yes, I agree. There are lots of ways it can be done in chunks over time.

Mike Krause:
The other question I often get thrown at me is that it is hard to be equal, to give all the kids the same amount. But I guess the emphasis to me is probably more being fair than equal. What's your reaction to that?

Judy:
I don't think you can ever get to be equal. Like if you're saying not to waste even the businesses, these days are worth a huge amount of money for the land and also plant machinery. And if you're hoping to equally divide those business up into say four between your four children, everyone will get something, but will they get something that can continue farming?

Mike Krause:
Is it a viable business? Probably not.

Judy:
Yes. The fairness issue though - that's another thing that I've found really interesting is when you have a group of people together in the room together, and you talk about it openly and transparently and you give the facts. So people know how things have to operate or are operating. And then you say, this is our intent. This is what we want to happen as parents or whatever. And then you ask everyone else what they want. Sometimes the answers are really surprising.
People don't necessarily want to have a quarter of whatever it is, but what a lot of young ones say is, well, if someone's getting the opportunity to farm this land and making a living off it, and they're getting that opportunity now, it would be nice if I could have something and it doesn't have to be a quarter of the farm. If I could have something that could help me get started in something I want to do. And sometimes I'm surprised at how little that is or what it is, but you know, it helps if you ask, because it's quite often that children who have grown up in farming businesses know how difficult farming is – it’s 24/7. It is. They know what it's like when drought hits. So they're quite aware of what sort of cash flow there is, but they're also aware of how huge the asset can be. So, they can work it out. If they're adult enough, they can work it out themselves.

Mike Krause:
Thank you, Judy, for those many insights. To sum up then, there are six take home messages. Number one, don't assume you know the answers. Number two, use a facilitator to draw the answers out of the family. Number three, the conversation needs to start now. Number four, yes, it's scary to start. But the important thing is to start because it's more difficult if you delay this important conversation. Number five, discussions need to separate the business from the family. And number six, aim to be fair because if you wish the business to continue, it is difficult to be equal.