Business succession is one of the most important decisions that business owners have to make. Failure to have a plan for succession can have serious implications.  The traditional way for a family business is to introduce a new partner creating a new partnership but this may not be the best way to introduce new blood into the business.

Whilst it is accepted that businesses need to introduce new ideas and ways of working, if they are to progress there are a number of issues that need to be addressed. On the upside of the argument is that new blood brings fresh ideas and ways of working along with energy and enthusiasm. On the downside, the argument is that new partners pose a risk to the capital of the business and dilute the existing partner’s capital.  They may not be the best way to reward the next generation within what is effectively an established business structure.

Contract farming agreements allow the contractor to provide labour and management services. In return they receive a regular fixed fee for these services, plus a share of the profits which reflects the ability of the contractor to influence the profits of the business.   There are a number of advantages over the traditional new partner route, these include:-

• The ability to reward the incoming party with a profit related agreement
• There is no risk to the partnerships capital as both parties run their own business
• The ability for the contractor to build up their own capital

Whilst contract farming has become a well-established method for arable farms to take on extra land, they are less popular in the livestock sector but with the current pressure on margins, contract farming agreements offer considerable scope for both the next generation and new entrants to climb the farming ladder.

For a discussion or help facilitating succession planning in your business contact William at w.waterfield@fcgagric.com or your local FCG office.