Over the past eighteen months, we have received regular phone calls or met producers at field days across the state of Victoria looking for a tool or someone that might be able to help them.
Traditionally I would say that dairy farmers have been the most relaxed about completing cashflows for the simple reason they receive a regular monthly milk cheque. Over the past four years, it has been no secret that in the great Australian agriculture industry cycle, dairy has been struggling with lower than ideal milk prices & increased input costs have put pressure on the cash cow itself.
Unfortunately, sometimes you have to spend money to save money in the long run. I remember an expression that a dairy farmer once told me and its something that has stuck with me, “in the tighter times, you can’t just stop spending- sometimes it’s actually where you have to spend more.” For example, if you don’t maintain your laneways and you end up with lame cows & mastitis issues, which can cause production losses you can’t get back. Or in the short-term you stop applying fertilizer recommendations, you limit your pasture growth & you restrict your ability to produce hay or silage. You lose out on a couple of elements, immediate feed availability, lower fodder stores, or having to buy all your fodder in and you don’t get the benefited weed control these processes can provide. It is so important to consider the longer-term impacts of your decision right now.
And I know, what you are perhaps thinking, but we have no money. Well that is where we can help (hopefully!).
When you get to this point, you need to show your story and long-term plan to your bank manager. Take a customer that we recently worked with to help them to make a very important decision;
“Previously I had other advisors involved in our business continue to tell me that Xero was all we needed. We love Xero and it is great for our bookkeeping/accounting needs, but we were lacking a key component, that was the budgeting & production data management. We had been looking for a program that could possibly do this type of report generation and had come across Figured, but we needed not software, but the support & expertise that is needed along the side of running this type of program- hence becoming involved with Mulcahy Agri.
We are making big decisions and we needed a service that provided us with confidence in our numbers and, Figured & Mulcahy Agri have done that. With this team in a timely manner I was able to finalise two completely different scenarios both over two-year periods & get a clear picture of both the projected outcomes. I was prepared, the reports looked professional and I felt confident in our numbers ready to present to the relevant parties.
Mulcahy Agri provides the relevant support and advice on how to best use the program & is responsive to anything I may be having trouble with. Although Figured is relatively new in the game of software they are progressing in terms of providing a wider array of reports & improving the user experience of the program. The team at Mulcahy’s are always up to date with any changes to the program, have suggestions on how best to use & complete tasks within the program and make sure I am across them as they are released. I am excited to continue to work with the Mulcahy team to see the results of this great combination.” Dairy Farmer – Northern Vic
The bank is not just going to hand money over when you need it. They need to see your thinking and your plan and what the results are expected to be by you making the decisions that you are. We understand that in certain circumstances it can be hard to remain emotionally neutral, but if you can show that you are prepared, with well thought out scenarios and confident in your decisions that is half the battle ‘won’.
In discussion with other advisors, we suggest that 40 % of net profit is driven from management decisions. As important as it is to get the cows milked & fed, spending time ON your business is a key element of all farming businesses, finding the right advisors and tools to do this to make as efficient (less painful!) is just as important as doing the work itself.
Succession can be defined as, ‘a process by which individuals are scanned to pass on the leadership role within a company’. The process ensures that the business continues to operate efficiently without the presence of people who were once holding key positions as they must have retired or resigned for example.
‘Succession Planning’ is on trend at the moment, and simply the way I see it as a generalization agriculture as a whole industry is pretty good, some would say the best they have seen it. Protein markets are sizzling (excuse the pun!) wool & grain prices are well above the 10-year average & it is an exciting time to be in the heart of agriculture. Naturally when things are going well it is encouraging for those with an agricultural bent, people want to be in it, do it & let’s be honest if you are a farmer breath through it!
In the last five years I think we have seen a turnaround, those returning to the family farm or choosing careers in agriculture no longer declining. The conversations around succession planning are continuing to become more and more because people can see a viable future.
We think that is important to remember you don’t have to take the linear approach with succession. Say for example, you don’t have any children of your own or perhaps your children aren’t interested in taking on the family business, but you are not ready to just sell it up to who ever wants to pay the highest price. We find that most farmers who are having trouble letting things go on the farm are usually the most passionate, they have worked hard their whole life to have what they do now & they are usually people that want to pass on their knowledge to someone; and there are people actively looking for transition opportunities. Whether or not your succession plan will be the more traditional family style or choose a different transition opportunity the crucial elements to consider in this situation are very much the same.
What things should be considered when talking succession planning for all farming businesses:
We like to remind our clients when we undertake succession planning it’s not a one step process, we like to break it down into three key areas:
Each of these steps can be completed over a period of time, there is nothing to say that these thre areas to be completed at once, we normally recommend a three staged process as it allows for people to work through the transition gradually and to before comfortable with each stage.
Assumptions: It’s often quite funny that people assume what other family members want and sometimes when you actually take the opportunity to listen to each person it may be different to what you thought- this is step one; get a clear understanding of what each individual involved actually wants. You may be surprised just because your siblings aren’t interested in the day to day running of the business, they may have an emotional attachment to the farm; they may not want their share of pie in cash if they realise the farm can’t survive that capital outlay- they may be happy as silent share holder.
It has to be Equal: If you start with the idea that your succession plan should be equal amongst the successors things get difficult, we prefer to look at what is fair- has one person been involved in the family business for a longer period of time and given up other opportunities or taken a reduced income for a period of time?
Succession isn’t completed by one person: Succession is a team approach- there so many different elements. Make sure that you are comfortable with the team you assemble. For example, we would recommend you include, an accountant, solicitor, bank manager, mediator. It is important for these purposes to not have someone that sits to ‘one-sided’ – get a team together that everyone is comfortable with not someone with an individual’s best interests at the centre. A good outcome is when everyone is a little unhappy; it means that things haven’t gone too much one person’s way.
Succession planning success is determined by setting a clearly defined mutual objective by those that are involved in the process at the beginning. It should be remembered that succession planning is a process not a job so works through each part of the process- don’t be in a rush. And remember a succession plan can be reviewed and so it should be as we know that circumstances change.
Looking to start the succession conversation, contact us to receive a FREE copy of our succession scorecard.