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Farmers should take the take the bull by the horns when it comes to planning for the future
Article date: 08/01/2016
After another difficult year battling the supermarkets, dairy farmers are all too familiar with the price of a pint of milk - often well below the cost of producing it. But as the fight to ensure they are paid a fair price for their produce continues, a leading expert warns farmers not to take their eye off the ball when it comes to other important financial matters.
"With income falling, it is little comfort to many dairy farmers knowing that their capital assets will have risen over the last few years," explains Peter Gosling, an expert in asset and wealth management at leading law firm Higgs & Sons. "With agricultural land prices continuing their upward trend, this leaves many farmers asset rich but cash poor.
"Many dairy farmers do not take a proper salary out of the business and to keep costs down they often employ family members, on the promise that they will in the future benefit from taking over the farm. The emotional baggage involved in such uncertain arrangements can cause major problems in the future and in some cases, the farm can be lost. meaning that where the son or daughter doesn't take up the family business, then the farm could be lost. Regrettably this is true in many farming families, not just those in the dairy industry."
Peter, who heads the Agricultural and Rural Services group at Higgs & Sons is familiar with the potential difficulties faced by families where succession planning has not been fully explored.
"Unfortunately many cases where verbal assurances have been made across the generations that 'one day son all this will be yours', are now coming before the courts. Perhaps a promise has been made that the farm will be left under a will (or passed on after retirement) to a person who often works long hours at low wages to keep the farm running. In some cases the family member may give up a potentially promising, alternative career away from the farm in the knowledge they will be inheriting the business."
Although many families do successfully pass on their estates without issue, the lack of any formal written agreements can lead to false expectations, and false hopes.
"The problem facing many farmers is that they often have competing aims," continues Peter. "On the one hand they are looking to treat all of their children fairly, splitting the assets equally between them on their death or retirement. On the other, they want to keep the farm in sole ownership, to ensure that the fruits of their lifetime's work stay intact."
Peter, who has several years' experience working with those in the rural sector, recognises that looking so far ahead may not be a priority when faced with the demands of running a family farm. But he advises that long term planning is essential to protect the valuable assets that several generations have worked hard to build up.
"With difficult choices to be made it is no wonder that many farm owners never get around to documenting their succession plans.
"A recent Farmers Weekly/NFU Mutual survey of farm owners and successors showed that 60 per cent of the 700 respondents currently working in a farming family did not have a written succession plan in place. 64 per cent of successors and 32 per cent of farm owners felt that that not being able to have a proper conversation is the most significant barrier to putting a succession plan in place.
Peter Gosling believes that it is never too late to plan to avoid potentially costly discussions in the future.
"Whether you plan to hold onto your farm until you die, or pass it to the next generation on your retirement, having a plan in place will ensure a smoother transition.
"The most important part of succession planning is making sure that all members of the family involved in the business have valid wills and that where appropriate, a partnership or shareholder agreement is in place. This will ensure that the ownership of the business ends up in the right hands at the right time."
Peter is an expert on creating successful succession plans for agricultural businesses. This will be the topic of his forthcoming talk at Investments and Inheritance - The Bigger Picture, a seminar focusing on financial planning organised by NFU Mutual.
Higgs & Sons is proud to be sponsoring the inaugural Farming Business of the Year category at the 2016 Shropshire Star's Excellence in Business Awards. If you are interested in applying for an award please go to: www.shropshire-eiba.co.uk .