Secession Planning
In our first article on this topic, we looked at how to get started on succession planning including assembling the necessary information, tax implications and setting goals. In this article, we look at family dynamics related to succession planning and how to have productive discussions that result in a satisfying outcome for all involved.
Geoff McIntyre is a Kelowna-based Business Advisor with MNP in Kelowna who specializes in the Agriculture, Food and Beverage industries. “Fortunately there seems to be greater awareness these days of the need for succession planning and a willingness to talk about transitioning the farm,” McIntyre says. “Most farms are family run and family members are bound by a love of the land. They work closely together and tend to have more conversations about the farm’s future than employees in other types of businesses.”
Not all farm families approach succession planning with ease, however. Sometimes it takes a bit of persistence to convince the owners of the need to plan, says McIntyre. The process may be initiated when a farmer wants to expand or buy more land and needs a tangible plan to show how it will operate. In extreme situations, a critical event such as an accident or health issue which suddenly prevents a farmer from farming will trigger the succession planning process. As well, beliefs and misconceptions about succession planning can delay the process, including:
- “A written succession plan isn’t necessary. I know what I want to do, it’s all in my head.”
- The belief that succession planning is about having a will and tax planning. Goal setting and family dynamics are not considered.
- Denial. “I’m just not there yet.”
When and how the transition is addressed is unique to every farm but there are three basic ways of exiting the business, points out McIntyre: “You may sell the farm to someone you don’t know/are not related to, close your doors and liquidate your assets, or transition the farm to family members. Once the owners have identified what they would like their farm to look like in the future, focused discussions need to take place with family members and others who may be involved.
“Start having stakeholder meetings to determine specific interests, who will do what and other details,” says McIntyre. Stakeholders can be non-family employees who may potentially buy into the business as well as family members. An increasingly important factor for farms and other family-run businesses is the implication of blended families. “Mom and dad need to consider whether the kids, grandchildren and/or step-children they have in mind to run the farm possess the drive, skills and business knowledge to do it. Perhaps some employees outside the family want to buy into the business and are better suited to operating the farm.”
Professional advisors can support the planning process by facilitating discussions from a non-emotional perspective, and providing expertise on taxation issues and corporate structure. “Much of the work succession planning specialists do focuses on land values and keeping the land in the family,” McIntyre says. “Considerable tax savings can be realized by protecting the farm status of the business – for example, when a farmer moves from traditional agriculture to operating a winery, or making other value-added products that are not considered farming within the local regulatory framework.
“Your exit plan should be something you do on your own terms and in your own timeframe rather than being forced into the process due to an unexpected event,” McIntyre adds. Planning the transition can enable you to protect what you’ve built from bad business decisions when you are no longer involved day to day, and help you be financially secure and happy in your retirement.”
