1: Get started now.
Life doesn't go to plan, so the earlier you begin thinking about generational transitions, the better.
Graham first thought about succession in his early 40s, when his father was diagnosed with lymphoma. His father was reluctant to talk about succession issues, preferring that his surviving family would work it all out.
After Graham's dad passed away, some of the family assets were left to his mother, who shortly began to suffer from the early stages of dementia. Fortunately, while she was still of sound mind, Graham and his sister discussed the family assets with her. She trusted her two children, and she agreed to distribute her assets between them, with the understanding that Graham and his sister would take care of her in her twilight years.
Despite his father's reluctance to discuss succession and Graham's inexperience, this story has a happy ending. This was because of the open lines of communication between Graham and his sister, as well as their mother's trust in them to take over before her health declined further.
Sadly, when not planned effectively or at all, successions often don't end well. This process - or lack of - can put massive pressure on relationships, tear families apart, and once-successful agricultural operations can collapse as a result.
This initial experience with succession made Graham start thinking about putting plans in place for when his children would eventually succeed Wendy and himself.
2: Seek third party advice.
Consult with an impartial, third party specialist.
Unsure where to start, Graham and Wendy decided to consult with a succession adviser from Next Transition Group. Their Next Rural division specialises in generational transitions and helps farming families avoid the common pitfalls of succession by using structured planning.
The Claphams worked with Chief Executive Officer Mark Scanlon, who interviewed each family member separately, asking about their expectations from the succession process. Based on these discussions, he recommended a succession plan tailored to the Clapham's unique circumstances.
Graham says that working with Mark was a fantastic first step to the Clapham's succession journey. That said, he also notes that the planning process can't be rushed. Every farm is different, just as every family is different, and succession plans can and should adapt over time as circumstances change.
3: Communicate.
Move forward with honesty and courage, and listen just as much as you speak.
When Graham first commenced his family succession journey, he expressed his trepidation and fear. His advisor, however, reassured him that 'succession is fraught with danger for those who don't talk about it.' In fact, as the Claphams have learned, confronting your fears around succession can have many flow-on benefits.
From the beginning of the succession journey, the family has held monthly meetings to address the nitty-gritty of the business. All elements of their enterprise are fully transparent. The openness and trust established during the succession process allows the entire family to be involved in decision-making, ensuring the long-term vitality of both the enterprise and the family unit.
Graham found that being open and honest with each family member about their expectations and desires was the key to a successful transition from one generation to the next.
4: Be reasonable in expectations and commitments.
An essential part of a generational transition is for everyone to uphold reasonable commitments and have reasonable expectations.
The price of good agricultural land has exploded in recent years. As Graham points out, however, 'If a retiring farmer exits the enterprise with a large portion of capital, how can the operation survive for future generations?' In other words, a mass exodus of capital leads to debt, and farming operations burdened by debt often don't survive. Reasonable expectations around how much capital can be taken out of the land is essential to the survival of an enterprise.
Similarly, setting up reasonable responsibilities for each party is vital to the survival of an agricultural operation.
Crucial to the family's succession process was the establishment of a Deed of Family Arrangement to formalise the agreements and specific commitments of predecessors and successors.
The document, which all parties signed, allows the will and distribution of assets to be changed for specific reasons, such as untimely death, reneging on previous commitments or debilitating health issues. This sort of document gives all parties the security that if situations change, or obligations are not upheld, just legal action can be taken.
There are plenty of horror stories out there of families blinded by dollar signs and zeros, tearing themselves to pieces and losing everything to lawyers in the process. However, as the Clapham's have found, if all parties have reasonable expectations and responsibilities, the agricultural operation and family relationships will survive and thrive.
5: Shepherd your farm's capital.
Succession planning is a process of effectively shepherding capital from generation to generation.
In the Clapham's succession plan all three children have early access to their inheritance. The couple's youngest son did not want to continue in farming, which meant that some capital needed to leave the business. Fortunately, this was minimised by Graham and Wendy owning some non-agricultural assets.
The family had managed their capital prudently, which allowed them to divide their assets and allocate their youngest son his share without the operation falling into crippling debt.
An element in the succession equation was an agreement that the families remaining in the business would be responsible for the needs of the older generation, just as Graham and his sister had looked after their mother's years before. The division of assets reflected this commitment and ultimately it represented a fair and equitable result to all parties.
Most importantly, much of the capital was kept in the land, where it can provide livelihoods and prosperity for future generations.
