FOR FARMING FAMILIES

Before you plan succession, know where the farm stands

Before anyone talks about who gets what, someone has to write down what there is.

That means mapping everything: what the farm owns, what it owes, how it's structured and who does what. Then thinking through the financial reality, not just the vision.

The numbers matter to each person at the table for a different reason. The retiring farmer needs to know what they can live on, and where it will come from. The incoming farmer needs to know the farm can support a family at a liveable income. And everyone else needs them to work out what fair looks like.

Assets and value

• What is the farm worth? Land, improvements, infrastructure. Recent comparable sales in your district give you a ballpark.
• What are your livestock worth at current market value?
• What is your machinery and equipment worth?
• Do you have water rights or entitlements? What are they worth?
• Are there any mineral rights, exploration licences or other interests on the title?
• What do you hold away from the farm? Super, managed funds, other property, savings, shares.
• What is the total estimated value of everything?

What it owes

• What is the total farm debt? Mortgages, equipment finance, overdraft, personal loans.
• What are the interest rates and repayment terms?
• Are there any guarantees or securities given to third parties?
• Are there any legal claims or disputes pending?
• What is your net position, total assets minus total debts?

How it's structured, and who does what

• How is the farm structured now? Sole trader, partnership, company, trust, or a mix.
• Who are the legal owners of the land? Check the title.
• Who are the directors, partners or trustees?
• Are there existing shareholder agreements, partnership deeds or trust deeds? When did a lawyer last review them?
• Who is involved in running the farm now, family, employees or contractors, and what does each person do?
• Who makes which decisions: financial, operational, strategic?
• Are there employees who are critical to the operation and might be affected by the transition?

Income for the retiring farmer

• How much income does the retiring farmer need each year? Be realistic: living costs, health, travel, contingency.
• Where will it come from? Farm income, super drawdown, rental, shares and savings, Centrelink.
• Is a lump sum needed, for a house in town, clearing debt or helping the kids? How much?
• How much of that needs to come from the farm, and how much from other sources?
• What does the super position look like? What can be drawn, and when?
• Is the retiring farmer eligible for the Age Pension, and how would different options affect that? Think asset tests, income tests and deeming rules.

A living for the next generation

• Can the farm support the incoming farmer and their family at a liveable income?
• What is its current profitability, after all costs, including a realistic wage for the operator?
• Can it carry the retiring farmer's income needs and the incoming farmer's living costs during the transition?
• Are there ways to improve profitability? Scale, diversification, new markets, cutting costs.
• What spending is needed to keep or improve the farm's productive capacity? Fences, water, pasture, machinery.

Debt and cash flow

• If the incoming farmer needs to borrow, how much can the farm service?
• What do the banks say? Have you had a first conversation with a rural lender?
• Are there alternatives to bank debt, such as vendor finance, family loans or a backer?
• What does cash flow look like in a good year, an average year and a bad year?
• Can the arrangement survive two bad years in a row?
• What fixed costs must be met whatever the season? Debt repayments, insurance, rates, living costs.

The numbers need to stack up for every person involved, in the bad years as well as the good.

The full guide, The Cultivate Farms Succession Guide, is free at cultivatefarms.com/resources.

You can build your own plan at cultivatefarms.com/plan.