strategy succession structure · 2019-06-20 · review? • this is where machinery syndicates beat...

LFB

RURAL BUSINESS SURVEY

STRATEGY SUCCESSION STRUCTURE

Gary Markham

Director Land Family Business

Rural Tax Advisers and Accountants

Who are we?

• Grant Thornton

• Churchgates

What do we do?

• Farms and Estates

• Strategic Tax

• Succession

• Family

• Mediation

• Annual accounts

RURAL BUSINESS SURVEY 2017 RESULTS

Top 25% Average

Arable Gross Output 470 417

Arable Gross Margin 297 239

Contract Farming Income 157

Total Labour and Machinery 194 181

Profit before Rent and Finance 47 (12)

Basic Payment Scheme 97 97

Rural Business Survey

Key Points

Profit from Arable Farming

• Top 25% £ 47

• Average £ (12)

• Bottom £ (43)

Rural Business Profit

• Top 25% £232

• Average £158

• Bottom £ 80

Rural Business Survey

Key Points

Rural Business Profit excluding BPS

• Top 25% £135

• Average £61

• Bottom £ (9)

After Rent & Finance

• Top 25% £45

• Average £ (1)

• Bottom £ (51)

Rural Business Survey

Key Points

Margin from contract farming

• Top 25% - £42

• Average £ (24) £ (53)

• Bottom £4 £ (69)

Ratio of contract farming to in hand arable

• Top 25% - 31%

• Average 54% 61%

• Bottom 47% 130%

Where are we now?

• On a treadmill of being locked

into a system

• Where labour and machinery

must be kept working and every

productive area cropped

• Yield is king

• Dash for land grab – key money

paid

• Spreading fixed costs – or not?

• Supported by EU payments

Top 25% squeeze more output from inputs

Top 25% Average

470 417

173 177

• Significant differences in labour and machinery costs

• Number one culprit – depreciation – directly

proportional to investment in machinery

• Depreciation and contract/hire can be termed

“access to mechanisation”

• Top 25% £96 per acre

• Syndicates £49 per acre

• Total labour and machinery costs are similar to inputs

- where is the most scrutiny of strategy and external

review?

• This is where Machinery Syndicates beat Owner

Managed Businesses

- scrutiny

- accountability

FARMING AFTER BREXIT

Four businesses:

20% 30% 35% 15%

Cropping share farming

Separate business

machinery and labour

cost centre

Machinery syndicates

Average

£/Acre £/Acre

2017 Harvest

Top 25%

£/Acre £/Acre

2017 Harvest

Average

£/Acre £/Acre

Labour

Labour recharges 35 37 26

Management fees 4 - -

39 37 26

Machinery

Depreciation 30 66 64

Spares and repairs 20 23 23

Contracting and hire 19 30 38

Fuel 20 29 22

Other machinery 7 9 9

96 157 155

Labour and Machinery 135 194 181

The answers

- No-till/min-till?

- Grant aid?

- Machinery syndicates?

Share Farming Structure

• Forestry

• Farm woodland

• E.L.M

• Collaboration of several farms

• Public goods and natural capital

• Carbon offsetting

• Housing development

environmental offsetting

LFB

Thank you

Gary Markham

©2018 Churchgates Land Family Business Limited. All rights reserved.

This publication has been prepared only as a guide.

No responsibility can be accepted by us for loss occasioned to any person acting or

refraining from acting as a result of any material in this publication.

www.landfamilybusiness.co.uk

ADDING VALUE THROUGH NATURAL CAPITAL

“OPPORTUNITIES FOR FARMERS AND LANDOWNERS”

Annual Rural Business Survey Seminar

4th December 2018

John Lockhart FRICS FBIAC CEnv

Chairman, Lockhart Garratt Ltd

Arboriculture

Focusing on the

management and

maintenance of

trees

Ecology

Ecological

solutions to

support the

planning process

and planning

applications

Forestry & Woodland Management

Managing over

8,000 ha of

woodland from

creation to

harvesting

Landscape & Green Infrastructure

Land

management,

landscape delivery

and green

infrastructure

support

Minerals & Waste Restoration

Informed

landscape,

restoration and

environmental

management

services

Lockhart Garratt LtdEnvironmental Planning & Forestry Consultants

Celebrating 20 Years

Soils Survey & Advice

Surveying soil

resource to

inform planning

applications, and

final land use for

restoration

design.

PRESENTATION STRUCTURE

• What is Natural Capital?

• Why is it important?

• What is it worth?

• Why now?

• Opportunity or Threat?

• Roles for Farmers and Landowners

• Case Studies

• Actions / Next Steps

WHAT IS NATURAL CAPITAL?

Natural capital is our ‘stock’ of waters, land, air, species, minerals and oceans.

Natural capital underpins all other types of capital – manufactured, human and social – and is the foundation on which our economy, society and prosperity is built.

http://www.naturalcapitalcommittee.org/

Natural Capital Committee

NATURAL CAPITAL & ECOSYSTEM SERVICES

Natural Capital is the stock of natural assets, for example, habitats, soils, water and biodiversity.

The benefits that people derive from the natural environment (from Natural Capital) are known as Ecosystem Services.

Cultural

Non-material benefits people

obtain from ecosystems

WHY IS IT IMPORTANT?

State of Natural Capital Report 2017

Natural Capital Committee

• England’s Natural Capital - in long term decline

• Costly to our wellbeing and the economy

Safeguarding of Natural Capital essential to maintain Economic Growth

WHY IS IT IMPORTANT?

“Farmers may not like it but there is now overwhelming evidence that the way we farm is not sustainable environmentally”

UK Agency: Head of Rural Consultancy

“I’m not running for sainthood. I just happen to think that in life we need to be a little like the farmer, who puts back into the soil what he takes out.”

Paul Newman, Actor

UK 25 YEAR ENVIRONMENT PLAN

ANOTHER CROP

“ There is a another crop that Farmers and Landowners provide and this is in the form of the environmental benefits that their land delivers. In particular heritage, landscape, health and wellbeing, fresh water and clean air.

The Basic Payment scheme has dampened productivity and not paid for these Public Goods. GOVERNMENT NOW OWES FARMERS”

Michael Gove, CLA Rural Business Conference 2018

A GREEN FUTURE:OUR 25 YEAR PLAN TO IMPROVE THE

ENVIRONMENT

Chapter 1: Using and Managing Land Sustainably

1. Environmental Nett Gain

2. Improving management of land and incentives• New environmental land management system

• New farming rules for water

• Working with farmers to use fertilisers efficiently

• Reducing environmental impacts of pesticides

3. Improving Soils Health and Peatlands

• Better information on soil health

• Protection of peatlands

4. Focus on Woodlands

• New Northern Forest

• Large scale woodland creation

• National Tree Champion

5. Reducing Risks from Flooding and Coastal Erosion

• Expand use of Natural flood management solutions

• SUDs

• Property resilience

Chapter 2: Recovering Nature and Enhancing the Beauty of Landscapes

Chapter 3: Connecting People with the Environment to Improve Health and Wellbeing

AGRICULTURAL / LAND MANAGEMENT POLICY

Health and Harmony: the future for food, farming and the environment in a Green Brexit

• Public Payments for Public Goods

Agriculture Bill 2018

• Direct Payments phased out; 7yr transition

• Environmental Land Management Scheme (ELMS)

• Productivity/Risk Management/R&D Collaboration/Animal Welfare

WHAT IS IT WORTH?

Value of UK Natural Capital

£ Billion; 2015 prices

Source ONS 2018

OPPORTUNITY OR THREAT?

Opportunities

• New farming systems

• Innovative cropping

• Flood alleviation

• Soil protection

• Water quality

• Carbon Sequestration

• Public access

• Public engagement

• Woodland creation

• Biodiversity offsetting and habitat creation

• Green Infrastructure

• Technology

• Mapping and monitoring

• Market development

Threats

• Herbicide, fertiliser and cropping restrictions

• Land use constraints

• Loss of production subsidies

• Skills and expertise

• Public perception

• Public access

• Education and understanding

• Market failure

WHAT HAVE WE GOT?

Knowledge is Key

- What have we got?

- Environmental audit / Green Infrastructure Assessment

• Arable

• Grassland

• Woodlands

• Ditches

• Streams

• Ponds

• Hedgerows

• Orchards

• Trees

• Wetland

• Rights of Way

TECHNOLOGY

Technology and Performance mapping – understanding real performance of land

CRITICAL CONSIDERATIONS

• What can we deliver?

• Who wants it?

• What does the market look like?

- Capital

- Revenue

• Government or Private Sector?

• Monitoring

• Security and CertaintyNatural dam: Dee catchment

PUBLIC GOODS

Assets and Services providing benefits for which there is no clear free market mechanism

As yet finally undefined, but envisaged to be:-

• Environmental Management of land and water

• Public access and environmental education

• Maintenance of cultural and natural heritage

• Reducing or protecting from environmental hazards

• Improving health and welfare of animals and plants

EXISTING & EMERGING OPPORTUNITIES

Public Payment for Public Goods

Countryside Stewardship• Complexity/Uncertainty

• Changes for 2019

New Environmental Land Management Schemes• Collaboration

• Capital Grants – polluter pays – regulator receives

• User Friendly design – simple and un-bureaucratic

• Innovative mechanisms – reverse auctions

Other Initiatives• HS2 Woodland Funding

• Woodland Carbon Guarantee £50Million

• National Forest

• Great Northern Forest

• Catchment Sensitive Farming

• Upstream thinking

EMERGING OPPORTUNITIES

Natural Flood Management

Natural Infrastructure Schemes

• National Trust

Slow Clean Water• Service Providers

• NIS Contract

• Customers

CASE STUDY: TRESHAM GARDEN VILLAGE

Advance Woodland Creation

• Woodland Creation Planning Grant

• Woodland Creation Grant

• Woodland Carbon Code Registration

Ecosystem Services Mapping

• Site evaluation

• Masterplan Development and Benchmarking

Open Space Management

• Agricultural and land management opportunities

• Energy / water

BARDON 2: NATIONAL FOREST

Offsite Woodland Mitigation

• National Forest Engagement

• Guided by Ecological Network Mapping

• Third party engagement

NEXT STEPS

• Positive Action vs Passive acceptance

• Understand what you have got and what it is “worth”

• Proactive development of Market Opportunities

• Collaboration: Public and Private sectors

SUMMARY

Natural Capital

• Here to stay and at the Heart of Government thinking

Healthy Environment

• Essential for Economic Growth

Farmers/Landowners

• Understanding/new crop

Innovate and Drive market opportunities

QUESTIONS?

Lockhart Garratt Ltd

8 Melbourne House

Corbygate Business Park

Weldon, Corby

Northamptonshire

NN17 5JG

01536 408840

info@lgluk.com

Lockhart Garratt Ltd

Greystones House

Burford House

Chipping Norton

Oxfordshire

OX7 5UY

01608 648 657

info@lgluk.com

www.lgluk.com

Richard Jones BA(Hons) MBA FPFS

Chartered Financial Planner

Director of Oundle Wealth Management Ltd Partner Practice of St. James’s Place Management

Richard Jones and Oundle Wealth Management Ltd represents only St. James's Place Wealth Management plc (which is authorised and regulated by the Financial Conduct

Authority) for the purpose of advising solely on the Group's wealth management products and services, more details of which are set out on the Group's website

www.sjp.co.uk/products. The `St. James's Place Partnership' and the title `Partner / Partner Practice' are marketing terms used to describe St. James's Place representatives.

CL I CK TO E DI T MAS TER TI TLE S TYLE

L I F E T I M E P L A N N I N G : C A N YO U A F F O R D S U C C E S S I O N

Agenda

• The Problem With Succession Planning

• What is Lifetime Cashflow Modelling?

• What Can it be used for?

• Worked Examples

• Limitations

• Questions

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T H E P R O B L E M W I T H S U C C E S S I O N P L A N N I N G

CL I CK TO E DI T MAS TER TI TLE S TYLE

W H AT I S L I F E T I M E C A S H F L OW M O D E L L I N G ?

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W H AT C A N L I F E T I M E C A S H F L OW M O D E L L I N G B E U S E D F O R ?

• Voyant allows us to test different approaches and plans to see what difference each action makes.

• For example, what if I:➢Retire now

➢Give some money to the children

➢Downsize / move out of the Farmhouse

➢ Sell the business

➢Buy a boat

➢Fund school fees

➢Want to pass the business down a generation

➢What are the tax implications?

CL I CK TO E DI T MAS TER TI TLE S TYLE

W O R K E D E X A M P L E – T H E P R E M I S E

• Alan (50) and Ann (47) own and farm 700 acres.

• Son Johny is 17 and Daughter Jane is 15.

• Johny hopes to attend Harper Adams and then farm. Jane has no farming interest.

• Plan is to enable Johny to take on the farm in due course, with Alan and Ann gradually doing less and taking less if affordable.

• Clients would like to assist Jane buy a house in due course, and pay for her wedding when / if the time comes.

• Any surplus income retained within business bank account.

Is this affordable?

CL I CK TO E DI T MAS TER TI TLE S TYLE

W O R K E D E X A M P L E – E X P E N S E S & S O U R C E O F F U N D S

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Employment £140,000 £102,500 £105,063 £150,765 £110,381 £113,141 £162,357 £118,869 £121,840 £174,841

State Pensions

Money Purchase Pensions

Savings and Investments

£19,401 £1,557 £20,255 £863 £20,749

Asset Liquidation

Estate Credit

All Shortfall

CL I CK TO E DI T MAS TER TI TLE S TYLE

W O R K E D E X A M P L E - C A S H F L OW

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W O R K E D E X A M P L E - C A S H F L OW

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W O R K E D E X A M P L E – P O T E N T I A L S O L U T I O N S

• Reduce expenditure now – how much?

• Curb Retirement Plans – to what extent?

• Reduce Farm involvement later – make Johny wait!

• Rethink how to support Jane.

• Make provision for private income in retirement.

CL I CK TO E DI T MAS TER TI TLE S TYLE

W O R K E D E X A M P L E - C A S H F L OW

CL I CK TO E DI T MAS TER TI TLE S TYLE

W O R K E D E X A M P L E – C A S H F L OW P E N S I O N P L A N N I N G

CL I CK TO E DI T MAS TER TI TLE S TYLE

W O R K E D E X A M P L E – I N H E R I TA N C E TA X P O S I T I O N

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R E A L L I F E E X A M P L E S

• Clients selling a parcel of land – what to do about Inheritance Tax.

CL I CK TO E DI T MAS TER TI TLE S TYLE

R E A L E X A M P L E – I N V E S T I N G S A L E P R O C E E D S

CL I CK TO E DI T MAS TER TI TLE S TYLE

R E A L E X A M P L E – I N V E S T I N G S A L E P R O C E E D S - I H T

CL I CK TO E DI T MAS TER TI TLE S TYLE

R E A L E X A M P L E – I N V E S T I N G S A L E P R O C E E D S & I H T

CL I CK TO E DI T MAS TER TI TLE S TYLE

R E A L L I F E E X A M P L E S

• Can I afford to Retire?

CL I CK TO E DI T MAS TER TI TLE S TYLE

R E A L L I F E E X A M P L E S

CL I CK TO E DI T MAS TER TI TLE S TYLE

R E A L L I F E E X A M P L E S

CL I CK TO E DI T MAS TER TI TLE S TYLE

R E A L L I F E E X A M P L E S

• Can I afford a Boat?

CL I CK TO E DI T MAS TER TI TLE S TYLE

R E A L L I F E E X A M P L E S

CL I CK TO E DI T MAS TER TI TLE S TYLE

R E A L L I F E E X A M P L E S

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L I M I TAT I O N S

• Is this Model Correct?

• What about inflation?

• What about a market crash?

• What if I need to pay for care?

• How accurate is it?

• What if my plans change?

• What if the rules change?

• Is it time consuming?

• What if other, non-financial factors, are more important?

CL I CK TO E DI T MAS TER TI TLE S TYLE

THANK YOU

Any Questions

Richard Jones

Office: 01832 279170

Mobile : 07447 581919

Email: richard.jones@sjpp.co.uk

Web: www.oundlewealthmanagement.co.uk

Thank You

LFB

RURAL BUSINESS SURVEY

STRATEGY SUCCESSION STRUCTURE

QUESTIONS