With the long term prospects of macadamia farming, planning for future generations is crucial to ensure the continued prosperity of the business.
As a long term crop and one that can keep providing for multiple decades, macadamias require a long term view and a structured succession plan to ensure the hard work and capital invested today will pay off tomorrow.
Formulating a constitution that guides the business in the future, making provision for second and third generations as well as for the eventual retirement of the current generation, will minimise family conflict and create a clear way forward.
Speaking at Laeveld Agrochem’s Seil Safari conference held earlier this year, Theo Vorster, CEO of Galileo Capital, noted that the first generation is the most important in setting the tone for the business. “No one will ever have the gravitas that the first person had, so it is important they put a constitution in place that steers the business forward, even if they are no longer around.”
Managing family in a business
Vorster said that family businesses fail for several reasons, most notably because the interests of the family versus the interests of the business are not in balance. The family also often grows faster than the business and weak financial planning and low liquidity results in limited cashflow and inevitably, tension between relatives.
“Good succession planning will result in greater clarity and peace of mind about the future, increase the family’s intellectual capital and create a family focused on the principles of stewardship for the next generation. The family will also be empowered rather than having a ‘this is my right’ arrogance.
“The succession plan should ensure that the business has planned and prepared for the handing over of the ‘cheque book’ to the best person, and it should make provision for downscaling and retirement for the older generation.”
When a family constitution is put together the following factors need to be addressed:
- vision and dream for the business
- values and principles on which decisions should be based
- succession planning and conflict management
- principles for downscaling
- retirement and the inclusion of inputs from retirees
Vorster said that for the successful running of the business across multiple generations it was important to agree on its vision, to enable the values to be carried over from one generation to the next to ensure it maintained its reputation.
“Decide on the risk profile of the business and the policy in terms of expansion, retirement and those who are exiting it. You must have a downsizing and liquidation plan in place if there are no successors or all of the children are moving abroad. This can be planned for over time. Whether you are positive about South Africa or not is irrelevant: you don’t know where your children will live and study. If you have surplus capital you must operate like a global citizen and invest accordingly.”
Having a retirement plan in place for when you want to exit the business, move off the farm or remain living there, will create clarity for the family. “Decide timeously where you would want to live and plan for it.”
Regular discussions taking into account the latest record of assets, debts, cashflow and budgets should take place. Vorster said everyone must know the financial position of the farm and there should not be a misperception about how much money there is.
Farmers are advised to have a checklist in place that successors must fulfil before they can take over a business. This should include a document dictating how it is run and carried over from one generation to the next. It can be contractually decided how the profits are split or salaries paid.
It should also be stipulated who can obtain employment within the business, for example if there is a struggling cousin needing a job, it must be decided beforehand how such situations should be tackled.
He said the structuring principles must be decided before doing estate planning. Farmers must decide on the ultimate purpose of the farm. “Should it be there for generations to come? If not, then it will be best to sell what you can when you retire or die and leave everyone the cash. Or is the idea for it to be there for more generations?
“There is also the issue of leaving everything to one child or splitting the farm in equal portions among all of the children. Consider that with the latter option, economies of scale become an issue because you are slicing up the pie. You could consider leaving the business in a trust where the assets are never allocated to anybody, but remain within the trust. Just be sure to understand the tax implications where trusts are involved.”
While there is no silver bullet or right or wrong answer when it comes to planning for the next generation or how your farm should be managed in your absence, having open discussions and a guideline for family to follow will reduce strain on relationships and ensure the farm you worked hard to build up serves a greater purpose.