Achieving the right outcome when restructuring a farm business

Restructuring a farm business can be complex and requires careful planning therefore engaging professionals to navigate the process is often key to getting it right.

From establishing diversification projects or introducing livestock into an arable system to transitioning from in-hand farming to a joint venture or renting out the farm, reorganisation can take many different forms.

There are also more delicate and complex reorganisations, says farm business consultant Bradley Hurn, of Brown&Co.

“Transferring assets between family members, from one generation to another, splitting a business or perhaps even buying out family members, these are more complex and delicate with a lot to consider and take on board.’’

During a recent Brown&Co podcast covering farm business reorganisation, Bradley advises that there are two important components in restructuring - family objectives and the financial viability of the business.

In a family business, there is often a trigger that ignites conversations on restructuring.

“From the outset in those initial discussions, there must be a great deal of honesty and openness about what family members want and the timescales of those objectives, how they want to get to there from the current position,’’ says Bradley.

“We need to piece together what various people want from the business, or not as the case may be, and then figure out how that can be achieved.’’

Some reorganisations are more straightforward than others but restructuring family businesses is often complex and delicate to navigate. 

After initial discussions, the viability of the business must be established – its current performance, how it might look going forward, whether there is debt to consider if a business is to be split or assets transferred to another family member.

“If the business is shrinking, will the financial performance be there to deliver and cover any debt requirement? It is really important to understand family objectives and financial viability and to make sure that these are compatible,’’ says Bradley.

Multiple professionals will be key stakeholders in supporting and informing the process. 

Reorganisation plans will require work on budgeting therefore involve a farm business consultant to get the initial budget in place and to understand financial performance.

Going forward, support is needed to produce business plans and budgets to work out business viability post-reorganisation. 

Get a land agent on board too as valuations will be required to establish what assets are worth.

“Often people don’t really know who owns what so there is an element of investigation and due diligence needed, and understanding where assets currently sit,’’ Bradley points out.

“It is a really important part of the process and one we need to get right.’’

Discussions on restructuring can be very fluid. 

“Don’t be under any illusion that where you start on day one is where you will end up at the end of the process as advice given along the way may change the course,’’ Bradley warns.

“It is an extremely fluid process and can take a long time, people need to understand that from the outset.’’

Engaging an accountant to advise on tax issues is important.

“Family members must understand any tax liabilities that will be created and this could  affect the course taken, fluidity is needed from that perspective too,’’ says Bradley.

Engaging banks at an early stage in the process is vital because if there is debt in the business the lender will need to know who will take it on, if it will be serviceable.

Banks must be comfortable that what is being proposed is achievable but of equal importance is that they grasp the family’s objectives, the reasons for the process, and the desired outcome. 

For banks, understanding the rationale and thought process of everyone involved is important, says Bradley.

“The bank will often require robust budgets demonstrating that the business can service any debt that may or may not be there as a result of the restructuring, and borrowing may of course be needed to deliver the reorganisation.

“Having transparency on financial performance and financial delivery is essential in instilling some confidence in the lender that what is being proposed is achievable.’’

But, ultimately, the family’s aims should be at the forefront of discussions.

“It is vital that when entering these conversations there is honesty, that is absolutely key in getting it right as is getting the right team around you. If you get the right team around you anything is achievable,’’ Bradley maintains.

“There will of course be stumbling blocks along the way but it is how problems are  overcome that is important. It is a process that takes time, reorganisations don’t just happen overnight.’’