This article was written prior to the COVID-19 crisis that is currently unfolding around the world. MNP recognizes the incredible toll these events are taking on people’s wellness, finances and families – and the elevated precedence these deserve during this difficult time.
With more than half of agricultural operators in Canada now aged 55 years or older, many farmers today are starting to think about the future of the business they’ve worked so hard to build and grow.
Yet very few have a plan for transitioning to the next generation.
“It’s a subject that most farmers seem to avoid because it deals with a lot of sensitive issues, such as family dynamics, estate planning and, of course, acknowledging your mortality,” says Bob Tosh, a Saskatoon-based family enterprise consultant at MNP, a Calgary-based national accounting, tax and business consulting firm whose team includes agriculture specialists. “And because it is a large task, it often gets left off farmers’ list of priorities.”
Of the 193,492 farms counted in 2018, only 16,200, or just over eight per cent, reported having a succession plan, according to Statistics Canada. At the same time, farming operations across the country have become complex, with one out of four farms incorporated in 2016 – a dramatic shift from four decades earlier, when 92 per cent of farms were sole proprietorships.
“Farms in Canada have become way more sophisticated, and the financial numbers are getting a lot bigger than they’ve ever been,” says Stuart Person, senior vice president, agriculture, at MNP. “This makes succession planning more important than ever.”
While there is no one-size-fits-all solution for effective succession planning, the best approaches all share common elements: inclusion of relevant family members, strategic tax planning, pro-active risk management, and enhanced financial fluency among the current and future operators, says Mr. Person.
At MNP, a comprehensive program called TransitionSMART provides a blueprint for succession designed specifically for family-owned farms. Covering all the critical stages, challenges and opportunities likely to be faced by current and next-generation farmers, TransitionSMART helps farms create analysis-based retirement and business plans, as well as plans for ownership transfer, communication, training and development, management, control and labour transfer, implementation and contingencies.
“Most families seek to achieve two main goals with their succession plan: the continued success of the farm business, and the preservation of family harmony,” says Mr. Tosh. “Through our program, we work to ensure a fair process, which doesn’t necessarily mean everybody gets what they want but rather that everyone is assured there’s a fair process and a safe space to express their opinion.”
Through the rigorous processes within TransitionSMART, farm families identify, as much as possible, the high-level strategies along with the various details required to drive these strategies. In the retirement plan component of the program, for instance, farmers look at such details as cash demands and income flows to determine how the farm can support the current owners’ retirement while continuing to sustain the business.
“In most cases, the retirement income comes from the farm,” explains Mr. Tosh. “So both the retiring owners and the next generation need to know what they have to do to ensure Mom and Dad are looked after once they transition, and that the farm can continue to thrive under these new conditions.”
Mr. Tosh notes that many farmers still believe having a will is enough to ensure the continuity of the family business. There are also those who recognize the importance of a succession plan but are reluctant to start the process of creating and implementing one because of the significant requirements in time, effort and financial resources.
This is where a trusted adviser with experience in agriculture-focused succession planning can be invaluable, says Mr. Person.
“Succession planning is not a straight line from start to finish – it’s more like a coiled spring with many unexpected turns and surprises,” he says. “With a comprehensive approach like ours, farms have a much better chance of creating an effective plan that they can implement step-by-step as they transition to the next generation.”
COVID-19 has been an unprecedented challenge for business owners in Canada and around the world. MNP is committed to helping clients, team members and communities adapt to an evolving landscape being defined by the coronavirus pandemic.
To help Canadians manoeuvre through this crisis and return to optimal operations, MNP has created a COVID-19 Business Advice Centre – continually updated with information, insights and guidance from team members as well as national and international authorities.
Produced by Randall Anthony Communications. The Globe’s editorial department was not involved in its creation.