Any business needs a good succession plan and this includes farming businesses. When you hand your farm over, you need someone to take over day-to-day operations and keep the land productive to safeguard its future.
However, passing the legacy of a farm onto a new generation can be complicated if you don’t have a farm accountant on hand to help you out.
Let’s take a look at why you need a skilled agribusiness accounting service to help you navigate the succession process.
Why Succession Planning is Essential for Farmers
Succession planning is a unique challenge for farmers because farming is more than just a business; it’s a way of life. Therefore, passing on a farm business is not just about financial assets but about family legacy and the land itself.
Family disputes are common, and disputes can arise over who will take over, manage the farm, and split the profits if the wrong kind of planning is not done.
Poor succession planning can also lead to unexpected tax liabilities and financial instability, such as the inability to service debt. In worst-case scenarios, this can lead to the loss of the farm itself.
Therefore, succession planning is more than just handing over the reins to a new generation. Rather, it’s a comprehensive and strategic process that involves planning for the future management, ownership, and legal structure of the farm. It is an all-encompassing strategic imperative that expert agribusiness accounting needs to take ownership of to help ensure that the farm can survive into the future.
Tips for Effective Succession Planning
Succession planning is best tackled early. The sooner it is established how the farm will pass on to the next generation, the better, as this will allow time to consider all aspects and facilitate a smoother transition. All family members involved should be consulted and brought into the discussion, even those who don’t have a direct role in running the farm, to avoid disputes down the line.
The plan should also be regularly reviewed as circumstances change. The financial position of the farm, family dynamics, and even various legal structures could shift over time, and you need to make sure that your plan remains relevant.
Legal and tax implications also need to be taken into account. This is where it pays to have an agribusiness accountant on hand to help you navigate the implications surrounding capital gains tax (CGT) and other potential costs when succession takes place.
The Role of an Accountant in Farm Succession Planning
Succession planning for farmers requires detailed financial analyses and breakdowns. However, the accountant’s role in farm succession planning goes beyond just crunching the numbers.
Role 1: Advice
The first and most important thing that an accountant will do is advise on the most suitable ownership and trading structures going forward. In some cases, the farm ownership structure will remain the same.
However, upon succession, it might be best to change the ownership and trading structure to balance flexibility, tax efficiency, and asset protection for the future success of the farm.
Role 2: Understanding Tax Obligations
When it comes to understanding CGT and other tax obligations and exemptions, you need an experienced accountant to walk you through it. Without help, selling or transferring farm assets can trigger a CGT liability, which can take a significant amount of your retirement funds or leave your successors with a hefty bill to pay.
In Australia, there are several CGT concessions designed for small businesses that can help reduce or eliminate the amount of tax you have to pay upon the transfer of the farm to successors. Your accountant will know exactly which exemptions and concessions might apply to you and help you minimise your tax liabilities during the transition phase.
Role 3: Regular Reviews
Completing regular reviews and updates is another key role that an agribusiness accountant will play, as it will help you evolve the plan as your farm circumstances change over time. Farms are naturally dynamic, as are the markets. As the business grows and changes, your succession plan will need to change with it.
Working with an accountant will help you successfully complete regular reviews of your succession plan to ensure that financial structures, tax implications, and management decisions accurately reflect the farm’s current reality.
Being proactive in this regard can help you avoid unfortunate financial surprises down the road and keep you on a solid financial footing from one generation to the next.
Role 4: Estate Planning
An accountant will assist with estate planning and asset protection, working with you and your legal advisors to help keep your assets protected and ensure they are passed on according to your wishes, without undue tax obligations.
This might involve setting up trusts, working on wills, and providing other advisory services regarding asset protection measures to ensure that your family remains within your planned succession lineage.
Choose An Experienced Agribusiness Accountant From The Start
If you are looking for an agribusiness accountant who offers specialised farm accounting services to help you navigate your farm succession plan, contact Schofields Accountants today.
