Pay Up!

Article by Eamonn Lanagan

as featured in the Farm Weekly issue 19 August 2021

The decision by today’s younger generation to come home to the farm is not straight forward. 

For those considering a return, investigating the financial and lifestyle factors can send you down many rabbit holes trying to arrive at a comfortable destination and often highlights generational differences in financial thinking.

How to reward family members financially is often a topic which brings with it some strong opinions and is rarely communicated clearly amongst those involved. This in turn constrains good decision making on farm business investment as parties can feel maligned and that any growth will not benefit them. 

It may be simple to pay a less than market value wage or drawing when a child returns home to the farm, as that is all the child needs and many of their costs are paid by the farm. However, if this is not clearly documented and communicated, it can cause significant problems in the case of succession planning, family breakdown or when their partner/spouse starts pushing for their “fair share”. 

Where possible all contribution to the farm business should be adequately remunerated by drawings/wages at market rates and all non-cash benefits clearly defined and documented. This is so that there are no lagged debts that can be called upon by children wishing to claim an ownership stake later down the track. If the farm cannot or has agreed not to pay the full agreed wage, then this deficit should be recorded and can be readjusted in the event of a sale, succession, or exit from the farm business. 

There is often a generational divide on where farm capital and investment should be directed. It may be to pay down farm debt, further expansion, personal cash drawings, funding parent’s retirement, education costs. These costs often arise simultaneously and often they are prioritised differently by each family member. The differing views amongst generations, unless talked through and planned upon early, can build up angst and stunt succession planning discussions. A starting point is to table these matters at the annual budget meeting and make provision for them.

It is always best to have discussions early and often. Don’t put them off. You may be surprised by how easy future financial decisions become when every family member involved in the business is aware of what is going on and why.

Next Step

To discuss this article further, we encourage you to contact Eamonn Lanagan on (08) 6274 6400, or your Byfields accountant.

Disclaimer: This content provides general information only, current at the time of production. Any advice in it has been prepared without taking into account your personal circumstances. You should seek professional advice before acting on any material.

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