UK economy under threat due to lack of succession planning by UK farmers
A recent survey undertaken by Barclays Bank of almost 400 arable and dairy farmers has shown that nearly half (44%) of UK farmers had no formal succession planning in place for when they retire which potentially could jeopardise the future success of their business.
A further 1 in 4 claim they do not have anybody to leave their farm to and 16% believe they do not need a plan.
This lack of proper succession planning could add considerable risk to the agricultural sector which contributes £85 billion annually to the UK economy and employs over 3.5 million people.
Elizabeth Webbe of Trethowans Solicitors in Salisbury and a specialist in succession planning says “A failure to plan can have a powerful influence on the development of a business. Studies have shown that farms lacking any successor are less likely to be managed intensively and as a consequence the business may be gradually wound down and decapitalised”. She goes on to say “There is nothing more likely to disincentivise the younger farmer than not knowing what his parents or grandparents have in mind and feeling that he or she has no real input in the future strategic direction of the farming business”.
Martin Redfearn Head of Agriculture at Barclays Bank says “Importantly, succession planning doesn’t need to be an arduous or expensive process, but it does need to be considered far earlier and in a more formal way than it currently is. We want farmers to feel confident about their own future and that of their farm. To do that, we advise them to seek the best possible specialist advice on matters such as financial planning, tax and legal issues. There is lots of support available to help farmers make the right choices.”
Elizabeth Webbe goes on to say “The idea of putting in place a plan can be quite daunting. Yet the consequences of putting it off until it is too late can be much worse for the family both emotionally and financially. Many feel that succession planning is all about taxes. It is not. Though they have an important role to play it is about ensuring that the hard work you have put into the business is not wasted after you have gone”.
There are a number of main steps required to transfer successfully assets down to the next generation.
1. Start early
It is important to start thinking about succession planning early. A good plan allows one to anticipate and prepare for future events and will take into account retirement incomes, support for future generations and offering alternatives for children who do not wish to pursue farming. It can be particularly stressful for the family and have a detrimental effect on the business if a transfer is unplanned through illness or sudden death of the owner. Hastily thought through succession planning under pressure can lead to family disagreements.
2. It is a continuing process
Succession planning needs to be a regular item on the family agenda. Over time circumstances change and it is important that the planning is flexible and adaptable enough to change to meet the new challenges. New additions to the family, marriages, deaths and other changes all necessitate a review of the plan. So even if you perceive that nothing has changed, it is important to ensure that the matter is discussed at regular intervals; ideally yearly and definitely once every three years.
3. Communication and involvement
A smooth transition will be borne out of agreement and discussion by the core family group. Conversely the lack of discussion will cause miscommunications between generations which could lead to mistrust and ultimately, in the worst cases, litigation. The start of any planning should be a family meeting (sometimes with the use of an external facilitator) where individual members can express their views on the family’s goals and ambitions, where one is now and what each member wants for the future.
4. Involvement of professionals
Though the discussions are for the family to make it is vital that professionals – solicitors, accountants and land agents – are involved at the appropriate stages. This will ensure that all relevant factors will be taken into account and it is often possible to bring up options and ideas that have not been considered by the family. It also allows for a less emotional and more detached approach to the decision making process.
5. Distinction between family business and ownership of the farm assets
It is always important to keep in mind that the firm is a business. The ownership of the farm and the running of the farm as a business are two different things and there is no need for one to mirror the other. Sometimes the separation of the two entities will allow greater flexibility to plan for the future and meet the aspirations of those members of the family not directly involved in farming as well as those who are.
The full survey results are as follows:
- 44% have no succession planning;
- 38% of those with a succession plan did not involve their successors in the running of the business day to day;
- Almost 24% of those planning to hand over to a family member (in 75% of cases of some) admit that their successor should be more hands on;
- A quarter of those without a plan admit that it was because they simply had not thought about it;
- 1 in 4 (27%) claims they do not have anybody to leave their farm to; and
- 16% believe they do not need a plan.
Source: Barclays Bank