Business succession is a universal risk that all commercial endeavours face and farming is no exception. For farming families the key risks and threats relating to succession can be loosely categorised as legal, capital, viability and inclination.

Briefly, legal concerns cover subsidies and taxation, and capital relates to the ability to retain or acquire land as well as investment. These lead to the third risk: viability. Without viability, the farming business clearly cannot survive. A farming family must therefore think like businesspeople, which will enable them to build individual business skills, assess the actual state of the business regularly, understand cash flow and the usage of debt, and aim for a business that is resilient through market/weather cycles.

The last key risk, that of inclination, is crucial. What if none of the only possible successors allowed by Agricultural Holdings Act legislation is interested or, more generally, if no family members wish to continue farming?

All of this takes place in the context of the UK farming being sector ‘distorted’ by EU policy, subsidies, politics and emotion. Farming is consequently particularly vulnerable to political and policy change. So while the nature of these succession risks can be broken into the four categories mentoned, what they require collectively are sensible plans anticipating succession.

Such planning is an emotional exercise and the nature of farming and land occupation makes this all the more pronounced. The human attachment and family identity, together with reputation and position in the community are often fused in a farm. There are, though, some stark warnings from the wider UK family business sector, where on average 70 per cent of family-owned businesses fail, or are sold, before the end of second generation (source: Family Business Place research).

Succession does not therefore solely concern retirement, but preparing for change in a way that will allow greater preservation of assets. Some considerations may be uncomfortable, such as equal and fair not meaning the same thing, for example with tenancies which only allow one person to succeed. There is a role for tax planning but this should not be the driver for succession planning because if family members consider the financial aspects (to which tax relates) first, then they will fail to reach alignment over the values and purpose which should form the bedrock of their business.

Determining those enduring and fundamental concepts must come first and will form the surest basis for commencing discussions on succession. These should involve and include the whole family and the younger generations. Some say the second best time to plant a tree is today and perhaps that can be applied to succession planning.

Further information

Contact Savills Rural services