In his 2021 budget speech, Treasurer Josh Frydenberg announced the extension of the instant asset write-off and a lift from $30,000 to $150,000 for new business equipment finance.

The extension is good news if you want to purchase a new piece of farm equipment because of the tax incentive it gives your business, but there can be unintended consequences if equipment finance hinders your ability to take on a loan to grow the farm.

So, the answer becomes a balance between lifting productivity with new farm equipment that can cut labour costs and sow or harvest more precisely with more land to farm.

When considering farm equipment, you can rule out smaller purchases like a new ute because these do not significantly impact your borrowing capacity. Instead, consider the impact of equipment that costs $500K or more.

A simple case study to consider; a farmer wants to expand production and is weighing up buying on-farm grain silos $500K to store their grain and cut costs, or they could purchase the farm next door for $2 million and produce more grain overall.

In this scenario, the loan term on the grain storage assets is five years, versus 20 years, to pay the loan for the additional land. As unlikely as it seems, the monthly finance payments are lower for the $2 million loan because they have longer to pay, and in this instance, the better decision is to buy the neighbouring land.

Ultimately, it comes down to goals and making investment decisions that align with them. If you are at all uncertain about how to strike the right balance, speak with your SproutAg advisor.

2020 was a significant year for farming businesses, as we witnessed record number of sales across the eastern seaboard; and saw land values soar to new records. Many businesses saw the opportunity for expansion, however, unfortunately, many potential land purchasers missed out on securing properties as a result of not being properly organised.  Sadly, many were unable to close on their negotiations as they simply ran out of time. Lengthy bank processes and the unchartered constraints COVID-19 presented; found many businesses blindsided, unprepared, and ultimately, disappointed as they tried to raise farm finance.

At SproutAg, we saw success where we were involved in the beginning stages and early conversations regarding plans for expansion, as we were able to assist with some of the nuances regarding obtaining finance in these unprecedented times. Being able to provide initial guidance and provide a clearer understanding of the changes we now face in the lending industry; led to much better outcomes for these clients; and avoided many unnecessary stresses and disappointments that we witnessed with clients we were involved with later in the process.

Fact: Raising farm finance has changed and, due to a multitude of reasons, is more complicated than ever before.

So, at SproutAg, we thought that it would be helpful to give some guidance to those who are wanting to purchase a rural property or simply expand their business.

May your purchase or expansion in 2021 be successful and seamless.

Best regards,
SproutAg.

Christmas can be known as much for family barnies as it is for prawns and a leg of ham for lunch, which is why it’s not the time to talk succession planning.

The temptation, however, to use Christmas to talk succession planning is strong for many families this year because of lockdowns and an inability to catch up as much as we’d like. Despite this, you should instead use Christmas to build or keep the close relationships needed to make succession planning a success. What’s worse is a family catch up that sours because an unplanned and structured succession planning session will sour the day and make you less inclined to catch up again.

Our best advice is to hold off until the new year and then with agreed dates to give the structure and formality needed for successful succession planning and business decision making. This structured approach is also better as it allows everyone to prepare, and for the discussions to be held in a formal way that gives everyone a say.

To be successful what is discussed and decided upon should be communicated to everyone in the family, whether they’re working on the farm or not. This gives everyone the comfort they are in the look with what’s going on and no one feels shocked or surprised. Building strong communication is vital for successful succession planning.

Forums should be created to achieve certain goals. Some should be set aside to make decisions about the business with those family members who work on the farm, there should also be regular forums for those who own the business.

So, this Christmas leave family days to relaxation, celebration and the enjoyment of being with family, and leave the strategy discussions to their scheduled forum dates.

Merry Christmas and a prosperous New Year.

When it comes to creating your succession plan, many things can lead to its success or failure. After years of sitting in on succession planning workshops, however, we’ve found some common traits that overcome the difficulties to create a successful plan.

Kindness and Empathy

Showing kindness and empathy, especially when others in the family aren’t or you’re under pressure is tough. However, this is critical in succession planning as it can be a balance of everyone’s goals and ambitions and so understanding a different point of view is vital.

It’s easy to forget the way family members act is influenced by their own concerns and issues. Regardless of the circumstances you shouldn’t be a pushover because you’ll never understand why they are reacting the way they are. Instead, listen, empathise and show some kindness in order to keep the succession planning process on track.

Gratitude

We all know working on the farm isn’t easy. It’s stressful, hard work and you are largely at the mercy of the elements, but we’re much better off than many other family businesses. That’s because in most cases the farm is handed down through the generations passing on a net worth significantly higher than the average Australian. Despite this and the significant growth agriculture has experienced over the last 20 plus years, many farming families are hard on themselves because of communication issues or they are having difficulty with some aspects of the farm.

Not being able to appreciate what we have can be destructive and shut off potential opportunities as people talk them down or put them in the too hard basket. Instead, think about the fortunate position you have and be grateful.

Patience

As advisors we’re stunned by the loss of a successful operation because impatience derailed succession planning talks. We’ve seen this happen from first generation farms to families whose property has been in the family for over 100 years.

The key thing to remember is there’s plenty of time to do the things you want professionally and personally even for those living and working well into their 80s. The next generation has decades to build their family and farming practices, even those in their 60s may have twenty plus years of working on the farm. With all this time each generation should recognise there will be a long time sharing the farm and working together when balancing their goals.

Patience is needed to work through life changing events like business and land transfers or changes in roles. Don’t let impatience derail the family business!

Being mindful of these traits can take the stress out of succession planning and create a more open environment to talk through any issues raised.

As a financial services business you might expect we focus on the numbers and business goals of a farm, but often we find ourselves sitting down with clients who feel lost after leaving the farm. Whether they’ve sold the property or handed over to the next generation we get asked the same question, “what do I do now?”

The impact of retirement on mental health is an important consideration that is overlooked by younger generations. A person who has spent their whole life on the farm, building it up and keeping it going during hard times will find it hard to let go.

In this article we talk about mental health and succession planning because it is just important as deciding on asset splits, financials and business goals. According to the Black Dog Institute, one in five Australians will experience mental illnesses in any year while only 35 percent will seek professional help.

A major cause of mental illness is anxiety, though not knowing what to do next or how to handle the responsibilities of taking over the business. These are questions that should be addressed during the succession planning process.

Identifying anxiety

While working with families on succession planning, we often come across at least one family member who is experiencing anxiety. There are many types of anxiety, but they share common signs and symptoms, such as:

• Very worried or afraid most of the time
• Tense and on edge
• Nervous or scared
• Panicky, irritable, or agitated
• Worried you’re going crazy
• Detached from your body and feeling nauseous.

When experiencing anxiety you may overthink things – everything’s going wrong, or I can’t focus on anything but what’s worrying me. You might also set yourself unrealistic expectations or have excessive fear.

It is common for succession planning to trigger anxiety and can be a reason a sticking point or concern is not talked through during the planning process. It can also be the reason people have an angry reaction and argue which can derail the succession planning process.

Helping get through anxiety

There are ways you can help yourself, or a family member who you suspect is having issues with their mental health. An easy way to remember what you can do is ALGEE.

Approach the person, assess, and assist.
Listen and communicate non judgementally.
Give support and information.
Encourage the person to get appropriate professional help.
Encourage other supports.

Mental illness may be the reason your family is stuck and not progressing. It is really important the family member experiencing mental illness seeks the right help and is supported appropriately.

Reach out to your local GP or the following organisation if you need support with your mental health.

Stuck, that’s how most of our clients say describe starting a succession planning conversation with the rest of the family. Succession planning is an emotional topic with each generation coming at it from very different perspectives that make it difficult to get the process of succession planning started.

Caught up in this is the impatience of the younger generation to take over the farm, and the older generation letting go. But it doesn’t have to be difficult, in this article we talk about how you can get the conversation rolling.

Understanding the roadblocks

Overcoming the discomfort in talking about succession planning starts with understanding what roadblocks are attached to it. After helping many farming families work through the issues associated with succession planning, we’ve come up with an approach that’s inclusive of all family members.

The first is to get the family talking so we can understand where everyone is coming from. This is especially important for the older generation who can be anxious about letting go of the farm, or what happens when a new family member arrives on the scene. Out of these conversations, we nearly always get asked the following:

1. How do we protect assets when a new family member joins the business?
2. Who does what in the current and future structure?

Other questions and issues are raised, but overwhelmingly it’s these two questions that are asked time and time again.

Protecting assets when a new family member joins the operation

When a family member gets married, they may want to get their spouse involved in the farm’s operations. This is often the hardest issue to tackle especially for the older generation who approach the topic with the best intentions but may have preconceived ideas about what will happen when a new spouse joins the family. These ideas can often be very different between the two parties.

Any new conversation should start with an understanding that everyone is allowed to express a view and that they’ll be listened to. This is especially important for the younger generation so that the older generation can talk about any anxiety they may feel in an open way. Sometimes the best way to do this is through an independent facilitator, like SproutAg.

Current and future roles 

The next big question is who does what in the current structure and in the future one. It is important that both the younger and older generation thinks in detail about what these roles are and what they are responsible for.

It is important for the roles to be defined with both generations input because it draws on valuable knowledge about what the farm needs now and, in the future, and how each role meets those needs. Defining roles is also a critical part of a successful transition as without it the older generation can feel left out of the operation, or the younger generation is unclear about what they need to do.

From our experience, the success or failure of a succession plan comes down to defining and documenting roles, even for those who want to exit the operation entirely. For the older generation, the deciding factor is often keeping them involved in the farm and making them feel part of its operation.

Despite the talk and headlines related to Australian farmland and foreign corporate ownership, the family farm remains the dominant business structure in Australian agriculture. There is a good reason for that; families run their farm operation very different to a corporation.

One of the great advantages of a family business is its ability to come together, cut expenses and make hard decisions when times are tough. Add to this, a family can act more nimbly than a corporation that often relies on management decisions made by its executives who are away from the day-to-day operation and conditions. An executive also needs to balance capital expenditure across its entire business, causing bottlenecks for investment decisions. This is despite the deeper financial pockets a corporation can draw on when compared to a family operation.

Compared to a corporate farm, a family business has the quick footedness to innovate and implement the innovation into their operation. A corporation can be hamstrung by bureaucracy as decisions need to go through management before implementation, meaning an opportunity is lost.

While on investment decisions, a corporation is more likely to sell out over a family-run operation because they are looking at the return on their investment and shareholder pressures. In these scenarios, if a farm does not achieve a return at a certain level, they may instead sell and buy property elsewhere that will. A family farm is more likely to see out the peaks and troughs of agriculture because they have a personal connection with the farm.

This personal connection and “in it for the long haul” mentality means a family is more likely to stay on the farm than a corporation. A corporation will have a set way of doing things, which works when things are going well, but this may fall apart during lean times.

However, there are some things a family operation can learn from a corporation. Corporations are generally more disciplined, document plans, research investment opportunities, set up regular structured meetings. They also clearly define business plans, management structures, processes and have clear vision and mission statements that guide their business.

This is a general summary to give you information about the benefits of family farm ownership. We can sit down with you to better understand your farm business and offer advice to achieve your goals.  Get in touch with your local SproutAg representative today to find out more.

Guiding the Generations: Essential Tips for Leading a Family Business

Owning and managing a family business can be complicated because you have the added difficulty of managing family members with the day-to-day operations. However, it’s equally a rewarding opportunity as the family work together to build the business you want rather than another’s ambitions.

There can be extra pitfalls along the way if you’re the one leading the operation. SproutAg has worked with many farming families, and we’ve found a successful leadership style that comes out of these five areas.

1. Have a plan

As a family, agree on a plan that outlines the overall strategy of the farm. Suppose you want to grow the farm over time, outline how it will be achieved. Typically, this plan will also include ownership of the farm and how you will transition between generations.

The plan must be realistic with these goals, which is why we recommend our clients draw up three-year plans with rolling cash flow forecasts. A three-year plan is also a helpful steppingstone to your longer-term goals and communicating them to the family, mainly if there are cashflow constraints on your growth plans.

It is important the plan is communicated to and understood to the whole family.

2. Create a structure

It’s important to create a sound business structure for the family farm. This structure should include the formalities like business structure (company, family trust etc.) and employment contracts that clearly outline roles and responsibilities.

There should also be a clear understanding of what happens if family members fail in their assigned responsibilities. A communication plan helps pull these factors together and articulates the overall farm strategy so everyone is informed.

3. Communication

Communication is a critical component of success and is an area we often talk about with our clients. Intergenerational communication can be incredibly complicated because each generation has a different communication style. As a leader, you should be open and encourage family members to speak up when they have an issue. You should also be clear in your communication style, so people do not misinterpret what you say.

4. Manage Conflict

Following communication, conflict management is often an issue we see time and again on family farms. It is crucial everyone understands how they manage conflict and that you address problems early on. As a leader, it is your job to bring people to the table and get them talking through their issues.

5. Be decisive

Being decisive is an important part of leading a family business. This includes making a call on who should or shouldn’t be involved in operational meetings. For example, when older family members ask a young non-working member at university to be part of weekly operation meetings. The result is tension because they’re given equal say to those who work on the farm each day.

You can work around these issues by creating sub-groups within the family who are responsible for making specific decisions about the business.

This is a summary to give you general information on leading a family farming business. We can help you create a structures and plan and to help you implement leadership into the farm business. Get in touch with your local SproutAg representative.

Working on the family farm can be very rewarding. Irrespective if you were born into it, married into or work for a family farming operation, you can benefit from all your hard work going back to farm without the formality that comes with corporate employment. However, with the rewards come challenges when something doesn’t go right that causes tension with the family or even see you lose your job.

A lot of reward but there can be downside

Family farms have all the benefits of a job for life, with your hard work benefiting the family business.  Many of our clients couldn’t see themselves doing anything other than farming, and it shows as they’ve spent their entire working life on the farm.

However, this security can have a downside as people become too comfortable and let things slip that they wouldn’t if they were in a more formal environment with greater accountability.

We also see young people starting on the farm given difficult jobs to prove themselves. If you’re part of the family, this may not be an issue as you understand the strategy, but others who come into it do not have this insight causing insecurity.

Despite this downside, there are ways to bring in the benefits of a corporate work environment without losing the reward of working alongside your family.

Procedures and structure

Many operations create procedures on how a job is done. They also write job descriptions that outline the role, requirements, and accountabilities to know exactly what expectations are put on them to succeed.

The benefit of this formality is that everyone working on the farm knows what they are responsible for, including making decisions. They also have a career path that includes remuneration, which should be at fair market value.

Finally, there should be scope to complete training and work with a mentor who can help develop the skills and attributes they want to succeed in their farming career.

More on accountability and decision making

A significant cause of tension in family farms is who, how and when a decision should be made. We’ve seen conflict when a family member’s decision-making is disagreed with by another, and tension builds from there.

From our experience, the best way to avoid this conflict is to give different people an appropriate level of decision making and exclude those who do not need to be involved. It’s about having the right people in the room. For example, an investment decision should be made by the owners involved.

An excellent way to manage decisions is to use a formal decision-making framework, so the lines of who makes what decision are clear and agreed upon. This approach also gives family members freedom to pursue their own goals and entrepreneurship.

This formality can also address the issues that come up when a younger family member at university or not working on the farm is given the same level of decision-making authority as an older sibling who works on the operation. This ultimately leads to tension as the older sibling resents the younger’s equal say. We often see this happen when mum and dad feel all family members should have an equal voice. Instead, we believe those directly involved in the business, working on the farm, should have a greater say than those who don’t. A decision framework will prevent this from happening.

Ultimately, achieving a rewarding career on the family farm for everyone needs some formal structures and procedures to make sure everyone understands their role within the business.

Get in touch with your local SproutAg representative if you have questions about setting up these structures.