Talkin’ ’bout my intergenerational business VI

My Great grandfather jumped ship in Bluff, NZ about 1890, leaving his 2 brothers to carry on to Canada and never be seen again. From there Mick shovelled gravel for a couple of years before opening a butcher shop in Gore.

About 1920 he brought a farm in the area to supply the butcher shop, eventually sons Dave and John took over. They hated each other and regularly came to blows…..the farm got split in half and both farmed through WW2 and the great depression growing their businesses slowly

Brendan and Michael took over from John quite amicably in the mid 60’s and both aggressively grew their businesses through the 70’s and 80’s with inflation matching their bankers risk appetite, both turned their half share in one farm into multiple properties, easy care Romneys being their specialty.

Brendan is my old man, and I returned to the home farm after 10 years shearing and a few seasons in the local abattoir. My transition involved buying 500 of the 6,000 sheep and farming these for 10 years in conjunction with beef and dairy grazing. During this period, I parted company with my first wife, fortunately all land was owned by a family trust, so bit of a blip and life went on.

In 2008 I converted the farm to dairy growing from 500 to 700 cows, for the next 13 years I had a good herd manager who himself brought cows, grew numbers, and left with circa 500k equity between stock and land transactions.

Now at 53, I have a 25-year-old son and 26-year-old daughter as well as Mr 12 and Miss 13 from second marriage. A couple of years ago we transferred land ownership transferred from my parent’s family trust to mine and $7 million debt, so now it’s time to be pro-active and consider the next generation transition avoiding my grandfather’s dust ups and treat 4 kids fairly while farming into the 5^th generation.

Debt and appreciating capital gain are two key aspects we all need to be comfortable with to be successful in capital heavy businesses like farming. Ever since 1920 our debt levels have fluctuated between 110% and 40%, yes in about 1985 Dad had just brought another farm and everything crashed, selling everything wouldn’t have covered the loans. Fortunately, the bank stuck with him…..

So now with Gen Z not being quite so comfortable with millions of debt on their own, and me not particularly wanting to milk cows in my 60’s…..what the plan?

Well first of all at 26 and not interested in farming let’s get my daughter on the property ladder…..how to find 100k for 20% deposit…..

Answer: Trust distribution in a good year with $10/KgMS forecasted Milk Price, can even use some historical losses or offspring with lower tax rates. The 100k is a loan from the trust, thus some relationship property protection.

So, she buys a tidy apartment in Melbourne with mortgage payments similar to renting. Now let’s think about the next apartment using Australia’s wonderful investment property rules where you can buy another property, often using your super as a deposit…..and if the rent doesn’t quite cover expenses you can usually offset losses from your personal income tax!

Now what about my son at 25, if he went dairy farming full time he’d be sick of it by 30…..so after 3 years hoof trimming and partying in Ireland, he’s on the farm learning off the herd manager and 2IC and we borrow another 100k to set up a hoof trimming business…..our cows now have the best feet in the area and he has an identity of his own…..

Feels like I’m half-way there…..at 53 with a few close relative and friends dropping off I don’t feel quite as immortal anymore, and increasingly discussions revolve around ‘making the most of every day’ or ‘live each day like it’s your last’…..So I’ve coming up with a theory and ‘live like I have 10 years left’.

This means that by 60 I want to have succession sorted….but Mr 12 and Miss 13 will still only be 19 and 20, I think 25 is soon enough to get serious in life or business.

I could wait, however working across Australia and NZ I see the most successful transitions use these periods to build ‘off’ or ‘on farm’ investments. Some examples

• Holiday house
• Diversifying into trees/carbon projects
• Shares
• Using some lazy equity for a passive investment
• Buy the neighbours!

The key here is to be pro-active, keep assets in trusts or use trust loans to seed other investments, as 50% of marriages fail. Make succession a regular conversation and if one of the kids has a crazy investment idea, don’t run it down…..run the numbers, if it doesn’t work your bank manager will shut it down.