A successful family farming workshop was recently presented by Old Mutual and Nedbank at the Amanzi Private Game Reserve near Brandfort in the Free State. The event not only emphasised the role of family farming enterprises, but also the importance of follow-up planning for when the existing manager retires.
The guest speakers included André Diederichs, chief operational director of the Family Business Association of Southern Africa (Fabasa), renowned guest speaker, facilitator and an accredited family business expert, Riana Grobler, manager of regional marketing at Old Mutual Central Region, and Maryke Marais, legal adviser at Old Mutual Central Region.
One of the important topics on the day was that of follow-up planning and exit strategies.
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Factors influencing the retirement process
Within a normal working environment, people are usually required to retire at a predetermined age, but this is usually not the case with a family farming enterprise.
The retirement of the existing owner is influenced by three main factors, namely:
- His willingness to transfer the family farm’s management to the next generation.
- The readiness of the successor or successors to take over the management of the farm.
- The financial implications and arrangements associated with the transition.
“To ensure a seamless transition of the family farm’s management to the incoming generation, start with a clear exit plan for the current generation and also actively enable the incoming generation to take over the enterprise. It is understandable that some family farmers may find it difficult to hand over the reins. This is because they wish to continue doing what they are good at, namely to manage and run their family farm,” says Koos Nel, head of Agri Market at Old Mutual.
Best approach for the transition
The family must agree on the approach to retirement. The best practice is to establish this in a family business constitution, which can also guide future generations through the process.
The following aspects should be addressed:
- Agree on a business policy outlining that all generations will be involved in the family farm with regard to business decisions. This is to ensure transparent communication and a sense of cohesion.
- Discuss the question of follow-up openly, so that the incoming generation knows how they will be integrated into the family farming enterprise and when the existing generation will retire.
- Ensure that provision is made for the financial needs of the retiring generation. This ought to create certainty for both the incoming and existing generation. For instance, a live buy-and-sell agreement can be implemented, according to which the business transfers funds in the name of the successor. This would be for the purpose of a tax-efficient investment to build up retirement capital for the existing generation.
- Retirement should take place over a period of time to allow for gradual retirement. The retiring owner could for instance start working increasingly less for two to three years, until he or she is fully retired. This is in fact a good policy, because it retains the expertise of the existing generation while the incoming one acquires the much-needed management skills.
- Ensure that the retiring owner is kept abreast of developments for a period of approximately two years in respect of what happens to the family farm after retirement. This is to prevent him or her from becoming concerned over what would happen to the business. Transparency puts people at ease and mentoring is good for both generations.
- Invite the retired owner to family business meetings, and leave it up to him or her to decide whether they wish to attend such meetings.
- Encourage the retiring owner to engage in other activities to remain active and stimulated. For example, they could make a valuable contribution to business chambers and farmers’ associations to empower the youth with their knowledge and experience.
It is vital to make sure that the retired person always gets the sense that they are welcome when it comes to the farm activities and management, even if the new generation makes decisions without the outgoing generation’s input.
Old Mutual Life Assurance Company (SA) Limited is a licensed financial services provider.