Unlike most “jobs”, farming is an all-encompassing, often family-run business that necessitates a physically, emotionally and mentally gruelling lifestyle. Living and working with family members every day can be wonderful for some and very challenging for others, particularly as issues regarding income, succession and decision-making have to be well-planned and communicated. Being prepared is vital for a healthy business and a healthy family. Here I discuss just how to best manage these challenges with Tony Catt, Director at Catapult Wealth.
Tip 1: Take Control of Your Time
The first big tip Tony gives to farmers to best manage their business is to take control of their everyday tasks in a disciplined and specific manner. Using a daily or weekly planner, diary or to-do list to write down, schedule and check off tasks, meetings or even phone calls every day can really increase your productivity and save time. If diaries or to-do lists aren’t your thing, Tony highly recommends sitting down for 5 minutes each night and planning out the next day so that you can go to bed with a clear head, knowing exactly what is coming and what your priorities are (our Time Management Course really helps with this!).
Also, get the most dreaded task out of the way first thing in the morning while you’re feeling energetic! Doing so will mean that even if the rest of your day doesn’t go to plan, you can at least feel a sense of achievement knowing that you have accomplished an important task. Encourage your family to do the same- I guarantee you will see and feel the positive results!
Tip 2: Consider your ‘Why?’
The Australian economy has really changed the landscape for many farming families over the past 18 months. As land values have doubled (in some instances), many farmers question whether they should expand, intensify or invest in their farms, and whether they can and should take on more debt. Tony’s advice here is to really consider the “why” in any of these decisions. What is your purpose in expanding, buying or selling land? What is the strategic intent behind such decisions?
The banking situation in Australia has really changed over the last 5 years, moving from asset to income-based, so it is now more important than ever to have a profitable farm business, as banks will look at the cash flow of your business more than its value. They will consider how old you are and will stress-test repayments at (currently) 5%. Can you afford that? How does it affect your succession plan; are you leaving your kids with a debt for the next 20 years? If so – again – what is the purpose in doing so? These are all important questions to ask yourself, but to also sit down with your family and talk about, as it will greatly impact them in coming years. Our Farm Financial Framework Course can help you answer these questions, as it is aimed at helping farmers know their numbers and make great decisions using them.
At the moment, we are happily experiencing real optimism in Australia that we haven’t seen for a long time, with a generally good run of seasons and land values increasing significantly. This affects succession planning because the farming community is generally divided into the ‘Top 20% of Farmers’, and the ‘Average Farmers’. The ‘Top 20% of Farmers’ are well funded, run and managed, have good HR practices, access to staff when they want them and are making good money. Therefore, when the farm next door comes up for sale the bank generally approves borrowing.
The ‘Average Farmers’ have some debt issues, are not as profitable as they should be, aren’t getting the results they want and can’t afford to take over the farm next door or borrow money. They therefore can’t increase in size, but also can’t afford to get any smaller. In this situation many farmers choose to get out and accept a reasonable price to sell. Both outcomes affect succession and can cause trouble within families, particularly when both on and off-farm children are involved.
Tip 3: Different Kids need Different Opportunities
Tony considers it vital for both off and on-farm children to carefully articulate their expectations and feelings around the changing value of the family property and how it will affect them in the future. The opportunities afforded to children through the property will be different for everyone, and it is important to consider this; off-farm children should genuinely ask themselves how the property has helped them to grow their own career and place less focus on exact numbers. For on-farm children who often work to pass on the family legacy, consideration of ‘opportunities foregone’ by remaining on the farm are important.
For all involved, focussing solely on the money is a road to nowhere and won’t end well. It is difficult for parents to keep succession completely fair and is therefore up to children to communicate what they want long-term and what opportunities the property is affording them. Unlike most other commercial businesses, less than 10% of younger generation farmers and their families buy into the business, so it is incredibly important to know exactly why you are getting into it and how you can get out of it if you need to. Farming can be a much more all-encompassing lifestyle than many anticipate!
Tip 4: Succession Planning = Risk Management
Successful succession planning is therefore more about proactive prevention than anything else. Many people put off succession planning because it feels overwhelming, brings up difficult conversations or reminds us that financial and emotionally-challenging decisions have to be made. Tony believes that succession planning is central to risk management, which is absolutely crucial for farms.
As unpleasant as it is to think about, we usually assume that people will pass away ‘in chronological order’ and therefore have no plans in place for the future of the farm if this doesn’t occur. Similarly, we don’t always consider, as a family, where older generations will live or how they will be cared for when they decide to stop active work. It is essential to consider what the ramifications are for the business as a whole if someone dies.
For example, asking questions such as may be tough, but very necessary:
- What assets can be moved?
- What happens to the bank accounts?
- Where will our cash flow come from?
- How will the business be handed over?
- Who controls the money?
- Who makes decisions about management, debt, land and payments?
They aren’t always enjoyable questions to work through, but are essential conversations to have as risk management for your business and to ensure you are able to access cash flow if and when a death occurs. Prevention is so much better than a cure when dealing with succession!
Tip 5: Succession Planning: An Attitude more than an Activity
As you can see, central to successful succession and financial planning is communication, and this is why the culture of a family and their farm is so important. Family members need to feel comfortable having difficult conversations and asking questions, and anyone who marries into or joins the family has to be fully aware of how challenging working and living on a farm with family can be. Good emotional intelligence is therefore integral to healthy family communication. This includes a genuine regard for others, selflessness, and perhaps most importantly, the acknowledgement that different people have different ‘truths’ (a more apt word than ‘opinions’ in this sense), and that it is within this lens of understanding and accepting others’ truths that difficult decisions can be made. Succession planning is therefore more of an attitude than an activity. If you enter into it with the goal of creating abundance for your whole family, you are more likely to have a great outcome.
Tip 6: You Can’t Afford NOT to Plan!
Succession planning can clearly feel all-consuming and overwhelming. By addressing it early with an attitude of creating and supporting abundance for future generations you are better able to risk manage the future and ensure the financial stability of your family and farm. Acknowledging that different family members will have different perspectives on certain issues and addressing planning in bite-sized chunks can lead to much better outcomes for everyone involved.
It is easy to become tangled up in specifics relating to the farm and money, but it is most important to value your family and their relationships above all else. This can be a tricky thing to deal with when you live and work together all year round, however it is definitely possible and worth the effort. Don’t be afraid to seek help in achieving this; an impartial third party that manages, supports and facilitates these processes can make all the difference!
By Jeremy “Hutch” Hutchings, Managing Director of Farm Owners Academy. You can listen to Hutch share his thoughts further on Finance, Farming and Families on Episode 97 of The Profitable Farmer podcast.