Sustainability and succession - intergenerational change in a farming family in central west NSW from a grower’s perspective

Take home messages

• Start early.
• Family comes first and separate it from the business.
• Be a good listener, be prepared to compromise and respect others needs and opinions.
• Everyone’s expectations need to be realistic, and don’t forget the big picture.

Objective

This presentation shares some insights into how we have managed our family farming business over the last 60 years, with particular reference to intergenerational change and succession planning. We will share what has worked and what has not worked, but stress that we are not wanting to preach, or to say that this will necessarily work for others. We also invited our family to contribute to this paper and their thoughts are included (in inverted commas).

The key areas we will focus on are:

• Managing change through different business phases, with reference to business growth and expansion.
• The key principles of effective farm business management and some tips and tools that we used.
• Resources we have used (i.e.advisers and networks), how we got the best value from them and the importance of those relationships.
• The key challenges to effective communication in our family business, particularly in relation to succession planning.

Managing change through different business phases, with reference to business growth and expansion.

Greg’s family farm

I grew up on my parents’ 5000 acre farm The Maze in the Gulargambone/Armatree area. After school I attended Yanco Agricultural College where the message I learned was: seek more knowledge.

I purchased my first farm, Willaroo (near Armatree) in conjunction with my two brothers in 1968. My plan was to buy land when most others weren’t, and to only buy good dirt. (I later bought out my brothers because they were already set up on farms near Warren). My father Andy and I were two of the inaugural campaigners for the Gulargambone Rural Advisory Service (GRAS) which was set up in 1969 to source a farm consultant to advise local farmers. It is still going today. I married Angela in 1974 - she had no farming experience - and we had four children, a son born in 1975 and three daughters born 1977, 1979 and 1981.

Syndicated farming

In 1979, Andy, Graham Peart (the local farm consultant) and I combined the cropping operation of our three farms, The Maze, Willaroo and Sunnyside. The company we formed, Sesu Pty Ltd, rented the cropping land from the various land owners and ran the cropping enterprise as a separate business. All the stock were retained and run by their respective owners and the three members sold off our farming plants and purchased one single farming plant for the business.

Angela & I commenced the purchase of The Maze in 1979 and in 1988 we purchased a neighbouring farm. Ten years later we purchased more land that joined the block bought in 1988.

In 1998 I stood down as manager of Sesu and a young couple were appointed to the position. With this change came the combining of all livestock. Sesu Farms, as it was then known, cropped 2000ha and ran 7000 merino sheep (3500 breeding ewes) and a small number of agistment cattle. Sesu Farms eventually rented all the land from the land owners and paid a percentage on capital as rental for the land. The company also intended to pay a rental percentage on stock and plant, but there was insufficient profit to meet this commitment. In 2002 our manager’s wife was headhunted by one of the banks and their family moved to Orange. Our family then decided to wind up Sesu Farms, but still run our farming operation as a single unit (The Maze Group, or TMG), with one adult child (then 27) controlling the cropping and another (then 23) managing the livestock. In 2007 three of our children together purchased another nearby farm and this was also managed by TMG.

Over the years we were also involved with:

• Scientific selection: we have been scientifically selecting sheep on measurement on The Maze since 1965. This self-replacing merino flock has been measured for 50 years for fleece weight/micron/body weight/fertility/plain body.
• GRASS Merinos: The Maze was one of eight foundation members of the GRASS Merinos stud in 1973 and is still a member, with our original share now owned by one of our daughters.
• Comparative Analysis: our system has participated in Comparative Analysis on and off for 40 years.
• Potter Farm Plan: after visiting The Potter Farm Plan at Hamilton, Victoria, in 1988, I began tree-planting at home in 1991 and the family has planted 28km of treelines. We continue to do so today.
• Nil-till and conservation farming: with strict rotations and timely operations, cropping yields have increased dramatically. Soil structure appears to have improved, but I am not sure what all the chemicals are doing to our environment.
• Succession planning: Angela will discuss this in more detail at the end of the presentation, but our take home message from our experience is to start early. Our succession discussions started in 1994 when our youngest child was 13, and ended in 2012 when she was 31. In 2009, once all our children were married, we moved to finalise our succession planning which resulted in all the farms being divided up between the family. The syndicated farming system had been successful for 35 years, but with four other people joining the family and two of the children marrying people who had a farm and a business elsewhere in the state, it was time to restructure. To make our succession plan work we opted to sell off the less-productive country on The Maze. In November 2009 Angela and I moved off the farm and built a house on two acres in the southern suburbs of Gulargambone. I continue to go out to the farm(s) on a regular basis, but am now an employee.

My advice from all this:

• Buy good land
• Don’t follow the pack: buy land when most others aren’t. Land prices have been cyclical over the last 50 years.
• Play to your strengths: if you don’t love cattle don’t expect to get a top return from a cattle enterprise.
• Have a fall-back plan: as expansion occurred we always had a fall-back plan; we sold the less- productive country off The Maze to enable our succession plan to work.

Key principles of effective farm business management

Communication

Good communication is crucial. The key principles are:

• Listen.
• Look for the body language (often you learn more from what is not said rather than what is said).
• Involve all family members and staff in decision making and planning.

Planning

Planning is critical. Ensure you have a well-thought out business plan that you constantly review. Have the flexibility to change the plan. If it’s not working, modify it.

Don’t just plan the big things, plan the little things.

The importance of regular meetings

• Operational - MMM meetings (Monday morning meetings). Record and document everything. All meetings including Triple M meetings have agendas and acknowledgements. 
• Strategic - Board meetings. In 2005 we set up a board for The Maze Group with outside members. This was an outcome from Executive Link.'The board structure helped keep the numerous stakeholders on the straight and narrow and ensured due process, and provided opportunities for networking new ideas'.

Give children every opportunity - but only up to a point

Ensure all siblings are offered the same opportunity.

In our case we offered all four the opportunity to:

• Go to boarding school
• Get a tertiary education
• Spend one year at home working on the farm after they left school, but only under the same conditions as all other staff members. They received no priority treatment, special preferences or extra days off.

Defined roles

'Our farming business model worked best when family and staff members had defined jobs. For example, someone responsible for different business areas such as cropping, financials, staff and livestock etc'. We conducted skills audits, wrote job descriptions and held regular staff performance reviews.

Holidays

We ensured our family had a minimum of two weeks holiday away from the farm each year.

Resources we used - advisers and networks – how we got the best value from them and the importance of those relationships.

We cannot stress enough the importance of seeking outside advice. We have used a professional farm adviser/agronomist since 1969. Other advisers we relied on were a financial planner, bank manager, accountant and solicitor. Sadly, both our accountant and our solicitor died suddenly and at a young age and while our succession planning was in full swing. So we had to find a new accountant and a new solicitor.

Our networks included: GRAS, GRASS Merinos, Resource Consulting Services, Bush Solutions and Executive Link (outcome from Grazing for Profit course).

Outcome from Executive Link

Angela and I joined Executive Link and both found the holistic approach to the farm business to be extremely beneficial. It encouraged left field thinking. As a result, Angela and I left the farm for a year during the 1995 drought and moved to the NSW Central Coast where, in partnership with one of my brothers and his family, we built seven villas. It was no bonanza, but we made enough money to continue farming.

External board members

Following on from Executive Link we invited two local farmers to join our board. Their input by seeing things through different eyes proved to be invaluable. They were paid an annual fee which included attendance at all board meetings, telephone support for the younger family members who were just starting to take over the management roles, and a condition where they must bring one new innovation or a new idea to each meeting for discussion. We always held a social function each Christmas for the external board members and their families.

The knowledge base within our own (extended) family

We were also fortunate that around the table we were able to call on the skills of an agronomist, lawyer, corporate banker, marketer, agribusiness banker, machinery expert, agricultural college graduates and an occupational therapist. They have all brought their own skills and expertise to the table.

Professional advisers at board meetings

Due to the cost of those advisers attending regular board meetings, we found it more beneficial to just invite them to specific meetings related to their area of expertise.

Key challenges to effective communication in our family business particularly in relation to succession planning.

Angela’s experience of succession planning with Greg’s family was as follows: Her expectation of building a house on Willaroo (they even had a plan drawn up by a draftsman) did not eventuate when, without any discussion, she was told that Greg’s parents were retiring to Warren and Greg and family would be moving to The Maze. Times have changed.

What made our succession planning work

Family is the KEY word. We cannot stress enough the importance of family. Put family first and people before profits. Separate family from business.

Any disagreements in business have to be left behind at a family dinner in the evening. We made sure regular family dinner and drinks were held straight after family meetings. Succession issues were not mentioned.

Start talking about succession planning early

The sooner you act the better the plan. 'Do not expect it to happen quickly. I.e: in a couple of years. For us it was a hugely evolving process to get to the end point.'

Communication

Good communication is crucial. Set goals and record them.

Agree on the best form of communication

We used email as a tool for communication with the family group as a whole. Using the phone invariably led to one or two members not getting the whole message, let alone any message. For example, they may have been out when we rang and then Greg and/or I forgot to call them back.

There are other apps on the market today for internal communication within families. Use what works best for your family. If you decide to use emails as a way of communicating - which we had to due to family being scattered far and wide - then ensure that not only do you all have the correct email addresses but your relevant advisers do too - and request those advisers to ensure that everyone in your family is cc’d into all emails.

Respect

'We were always honest and we respected each other, and because of this people could say what they honestly wanted to say. We could have an outburst yet know that no-one else outside of the family would ever know about it.'

Stage of life

'Timing was pretty good in our case but it is something to consider for others – before too many competing and divergent family commitments become too obstructive in the succession planning process. This is something for other families to consider especially where different families have different financial requirements, but the burden reduces when you are director of your own destiny'.

Debt

Another important factor we felt was to not let debt be used as an excuse to not do succession planning. If you have a good working relationship with your bank and a bank manager who understands your business, this will assist in being able to see the big picture and them looking after you. 'Interestingly, our debt levels increased even more from when we started to really formalise the plan in 2009 to when we finished in 2012, yet the bank was still able to accommodate it. From a banker's perspective, equity was quite tight for a couple of the families at finalisation, but I think the whole open and transparent process helped keep the bank comfortable with the position going forward.'

Document everything

All meetings were formal and documented.

Emotional outbursts are normal

'Do not be disheartened with the process when there are tears and tense moments. The whole process is not smooth sailing and it is important for everyone to raise important issues that need to be discussed in order to finalise the process. In saying that, try not to niggle or nit-pick the little or minor issues as you need to continue to focus on the big picture. It is a tense emotional time and I would be very nervous if there weren’t outbursts because I would be thinking, is the shit going to hit the fan later?'

We also feel that because two of our children’s partners had had exposure during previous legal and banking lives to many other family succession 'stories/processes' that they were able to reassure the rest of the immediate family members that our succession experience was really going quite well and not actually falling apart as some family members may have thought.

Be flexible

When we started, one daughter who lived elsewhere requested to be paid out, but, due to the viability and debt levels, when the plan was eventually finalised she compromised and offered to take a parcel of land in order to make the whole plan work.

Seek outside advice

Getting good advice is crucial. We found that a good accountant was pivotal to the organisation and success of our succession planning. There were other parts of the planning that we chose to do on our own. For example, all valuations on the land were done by family consensus and not by an external professional valuer.

What we did wrong/could have done better

More consideration should have been given to acknowledging adequate compensation for family members who worked on the farm - and factor that in from the beginning.

Our recommendation would be: consider what the family members could have earned, given relevant qualifications and experience, if they went and worked for someone else. Need to factor in the whole package: housing, vehicles, phones, etc, that are usually included when working for someone else in a farming enterprise. Consider also the opportunity to use the backing of farm enterprise capital for family members’ own personal needs.

In September 2011 we hit a roadblock over that particular issue, and Greg and I sent an email to the family and told them they had to sort out the issue themselves or we would be recommending they call in a mediator. That issue was probably the only major hiccup along the way with the end result being that the family did sort it out between themselves, and Greg and I felt very proud of them all for doing that.

Finalising the succession plan

So at the end of an 18 year process it was really pleasing to receive a congratulatory email from our accountant at the end of June 2012.

Conclusion

Our succession process seems to have worked out well. The children now own all the dirt and all the debt. Greg continues to go out to the farm(s) on a regular basis but is now an employee. We will shortly be moving to a retirement complex in Dubbo so we can travel more and spend time with our gorgeous grandchildren.

The key points to our success:

• Start early.
• Family comes first.
• Separate family from business.
• Listen, compromise, respect.
• Expectations need to be realistic.
• Don’t forget the big picture.

Concluding remarks from the next generation: 'Our kids are little (eldest is 8) but we are already thinking about our own succession. It is never too early. Things change but it is good to have a plan'.

Contact details

Greg and Angela O’Brien
obrien93@bigpond.com