Succession planning and the circle of life has one thing in common: it simply cannot be ignored or wished away.
The choice of successor or successors starts with the business strategy of the family farming enterprise. It will therefore be prudent to deliberate on the existing and potential future challenges of the farming enterprise, so as to determine the critical success factors.
These success factors will then serve as the starting point in identifying potential successors who have the ability and willingness to promote the successful management of the family farming enterprise.
“Ensuring a sustainable family farming enterprise for future generations requires planning for unforeseen events, such as the premature death or occupational disability of the existing owner/manager and/or potential successor, as well as the normal retirement or resignation of the existing owner/manager. Integration of the next generation is another important element of successful succession,” says Koos Nel, head of Agri Market at Old Mutual.
Importance of a succession plan
The lack of proper succession planning is one of the main reasons why businesses do not survive and are taken over or sold. Research conducted among farmers shows that 21% have not yet identified a successor and, by implication, does not have a succession plan in place. The succession planning process is illustrated by Figure 1.
Figure 1: Flow chart of the succession planning process.
There are also additional steps that can be followed:
- Preparing a successor: Training in technical skills to farm successfully, and exposure to management decisions to develop adequate management skills.
- Establishing a successor: Succession does not only affect the existing family. Successors must establish relationships with various interest groups, such as employees, financial institutions (banks, etc.), customers, and suppliers.
- Financial advice and planning instruments: Make sure that the structure of your estate planning is correct and tax-friendly and that your will and trust(s) are aligned with your planning. Allow the current owner to retire and to hand over the reigns as planned, but remain involved. If no successor is identified, formulate a plan and consider a buy/sell agreement and possible funding of the transaction through a life policy.
To make sure that all bases are covered the following important questions can be asked:
- Is there a plan in place if the existing owner/manager dies or becomes disabled before a successor is available?
- Is there a plan in place if the identified successor dies or becomes unfit to manage?
- Does the successor understand the financial implications of succession, such as whether the existing owner has provided for his/her financial independence, or must the successors buy the business or take care of the retirees?
Old Mutual has more than 170 years of experience, and a partnership with Old Mutual will help you to ensure that your legacy and your land are in safe hands for future generations.
For more information, contact Koos Nel, head of Agri Market at Old Mutual, on 082 459 1407 or email firstname.lastname@example.org. Old Mutual Life Assurance Company (SA) Ltd is a licensed financial services provider.