Don’t break the neck of the golden goose – carrying on the family farm business legacy
19 December 2023
Don’t break the neck of the golden goose – the golden goose being ‘a valuable resource that provides a consistent stream of income or some kind of wealth’. The family members currently in the hot seat often perceive themselves (and indeed their successors) as custodians of the business, whose overriding priority is to preserve and nurture it for the next generation. The family are usually committed to protecting the business’ reputation and have a sense of shared common identity.
It is estimated family businesses make up 85.9% of the private sector with some household names including Dyson, JCB and Clarks. The business may have been set up by a grandparent, perhaps as a sole trader, which has now flourished into a successful incorporated company. The expansion of the family business is often something the family is very proud of and is well invested in emotionally (even if not financially).
It is usual for the business to be a stakeholder in the local community and keen to give back, such as the use of farm machinery to clear roads in bad weather, educational tours of premises and financial donations to local causes. All of these actions can reinstate the positive perception of the business, and in turn hopefully make it one which the local community supports.
Issues the business may face
Regulation: with success and subsequent expansion comes increased regulatory and administrative responsibilities. These may include employment aspects, health and safety, additional tax and reporting requirements and ensuring the company documentation is in order. Farmers can feel burdened by these responsibilities, particularly where their predominant interest and speciality may be crops or livestock and not paperwork.
Succession: the business owner(s) can often be separated into two camps:
– those who wish to retain control of the business until death; and
– those who plan to hand over the reins upon retirement/ during their lifetime.
There are obviously benefits and drawbacks of each, which will largely depend on the type of business and who is ‘in line’ to take on the duty.
Diversification: with increased output costs (energy costs, wages, machinery, animal feed, vet bills, weather dependency, fertilisers, the list goes on…) farming businesses are being forced to consider new ways to generate income. This could include opening a farm shop, camping facilities or the use of barns/outbuildings/outdoor spaces for hosting events and livery services.
Tax planning: as part of any succession discussion, it is likely that tax will be a key topic. Equally, a diversification project can also have potential tax implications for the business and the owner(s) personally. Farming businesses can benefit from very attractive tax savings which makes it worthwhile taking a holistic approach to any proposed changes.
Our top tips
Communication: where possible, have open conversations with the family members involved in the business. From our experience, succession plans involve discussing prospective changes, which can cause disagreements. However, if done in the right way, involving the future generation in these discussions can:
- create a collaborative ‘all on the same page’ mindset;
- be an opportunity to prepare the future generations for upcoming responsibilities; and
- enable ideas to be shared to enhance efficiency and in turn the profitability of the business.
Play people to their strengths: this will depend on the size, set up of the business and indeed the family dynamics. There may be family members who have differing roles: farming the land/livestock, running a diversification project, liaising with customers and suppliers, and managing employees. Where possible, people often perform well if they do something they enjoy and are good at it. Listening to one another and carving up responsibilities can lead to greater productivity, reduced stress and ultimately contribute to the everlasting life of the golden goose.
Be surrounded by practical and innovative advisors: professional fees are sometimes perceived as an expense a farmer would rather not have. Experienced, forward-thinking advisors can provide a hands-on approach and suggest appropriate added value opportunities, such as:
- maximising tax savings;
- diversification options available and the benefits/drawbacks of each;
- succession planning, particularly where several families are involved in the business; and
- how best to achieve the primary goal of keeping the business legacy going for many generations.
Our trusted experts who have ‘been there and done that’ and seen it work successfully in practice are well placed to offer practical solutions fully tailored to the business’ dynamics.
Ensure paperwork is in order: a successful family business may have started off as a sole trader but now be a fully-fledged partnership or limited company. In terms of documentation, it is imperative to ensure the business owner(s) have a Will in place that deals with the business assets (and works in harmony with any partnership agreement, shareholders’ agreement or articles of association). The importance of this is to ensure that the business passes upon death in accordance with the owner’s wishes and hopefully avoids any need for dispute. Although the plan may be for the next generation to step in upon the death of the current owner(s), they may need to do this sooner than anticipated, for example if the owner were to lose capacity. As such, we strongly recommend that lasting powers of attorney are prepared to ensure the business can continue running in these circumstances (such as the attorney having access to business funds and assets etc).
Tax planning: when considering any ‘change’ to the business, it is important to understand the subsequent tax consequences. Alongside other ‘lifetime tax’ considerations, farming businesses can benefit from the inheritance tax reliefs agricultural property relief (APR) and/ or business property relief (BPR). These are valuable reliefs which can significantly assist with preserving the life of the business. As such, particular care should be taken to ensure any diversification projects and succession plans are mindful of the availability of these reliefs when planning for the future.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at December 2023.