For many of Scotland’s next generation of farmers, landowners and rural entrepreneurs, succession is no longer simply about taking over the family business. It is about taking it forward.
Succession has always brought the chance for the next generation to put their stamp on the business and bring their ideas for how to progress it. But increasingly rural businesses are evolving. Changes are no longer just about farming practice or direction. Traditional enterprises are being complemented by tourism ventures, renewable energy projects, environmental schemes, hospitality businesses and other diversified income streams. That creates exciting opportunities, but raises important questions about ownership, structure, funding and long-term sustainability.
Before launching a new venture or expanding your rural business in a different direction, here are six key areas worth thinking about.
1. Start the conversation early
Changes of direction or diversification often sit alongside a handover of responsibility within a family business. Even where formal ownership or control is not changing immediately, it is worth starting the conversation early about what the business might look like in future, who will drive the new venture, who will fund it, and how it fits with the wider business and property.
Those discussions can be difficult, particularly where different generations have different appetites for risk or borrowing or views simply differ as to what opportunities are desirable. Whether the business is prepared to consider renewable or other developments on its land is a position that often varies between generations. Bringing views into the open early can help to avoid misunderstandings later. It also gives time to agree what success should look like, before decisions that might have long-term consequences (either promoting or frustrating a new venture) are made.
2. Review existing business assets
Before investing in something entirely new, try to look at your existing assets with a fresh eye. Land, buildings, natural capital, heritage features and under-utilised areas of a farm or estate may already present growth opportunities. Many successful diversification projects start with identifying new uses for existing resources rather than acquiring additional assets.
It is also worth looking beyond your own business. What are other rural businesses doing successfully? Which ventures have struggled and why? Industry groups and peer-to-peer discussions can provide valuable opportunities to learn from others’ experiences.
Consider also what you have a genuine interest in or care for, and whether you can capitalise on that or work aspects of it into your plans. Building and running a new enterprise takes commitment. It is much easier to sustain momentum when you are passionate about what you are creating.
3. Think beyond the next 12 months
Changes of direction and diversification decisions should be made with (at least) one eye on the future. The rural economy is changing rapidly. Agricultural support mechanisms continue to evolve, environmental markets are emerging and regulatory requirements are becoming increasingly complex. Decisions that seem commercially attractive today may have different implications five or ten years from now.
One specific to consider is that growth often means bringing additional people into the business. If that is part of your plans, particularly if employing people for the first time, understanding your responsibilities as an employer is essential.
Significant changes from the Employment Rights Act are expected in the coming years, many of which are likely to be of particular relevance to new and growing businesses. Sick pay and parental leave rights have already altered. Rules around employees with zero hours contracts and for those who receive tips are on the horizon.
With diversification often looking to venture into hospitality enterprises where shift work and tipping are in play, it is vital that a business understands its obligations and seeks advice where appropriate before recruitment decisions are made.
Taking professional advice at an early stage, and along the way, can help to identify opportunities as well as potential risks. Understanding policy direction, tax implications and future market trends can often provide a significant advantage and help to avoid costly mistakes later.
4. Consider how new ventures will be funded
Every new business idea needs a realistic plan behind it. Before making significant investments, take time to understand the financial requirements of the project. Will additional capital be required? Can existing assets be used to support borrowing if necessary? What is the expected timescale for generating a return?
Traditional lending may form part of the solution, but it is not the only option. It may be possible to find untapped value in assets that have previously been overlooked, whether through leasing opportunities, alternative land uses or participation in emerging biodiversity and natural capital markets.
A longer-term or alternative funding approach could create a more sustainable route to growth compared to taking on debt at the outset.
5. Ensure business structure supports the new venture – and protects the current one
As businesses diversify, it is worth considering whether the existing structure remains the right one for the growing enterprise.
Various options are available but creating a separate entity (perhaps a new partnership, company or LLP) for a new venture can provide valuable protection for the core business, isolating potential risks associated with the unknown quantity. It can also be a staging post in the handover of a business, creating opportunities for younger family members to take greater responsibility for specific projects while the wider succession process develops over time.
There is, of course, a balance to be struck. Separate structures can increase administration and compliance requirements. However, when managed correctly, they can also offer flexibility, improve risk management and support future growth. Taking early advice, and keeping any existing agreements under regular review, can help to ensure that the structure continues to reflect how the business is operating and where it is heading.
6. Plan for the unexpected
Nobody can predict the future, and it’s impossible to cover all contingencies – the unexpected remains, by definition. However, having given proper consideration to some of the potential issues that could occur, you will be better prepared to manage when (despite best laid plans and preparations) a problem arises.
A crucial consideration for every business is what would happen if a key decision-maker became unable to manage day-to-day affairs through illness, accident or another unforeseen event.
Having appropriate practical contingency plans in place, alongside formal provision such as Powers of Attorney, can help to ensure that the business continues to operate effectively if circumstances change.
Building on tradition, planning for growth
Tweaking around the edges of an existing enterprise is rarely how the next generation now envisage taking over. Succession these days increasingly brings an opportunity to take a new direction, capitalising on existing assets through new routes such as tourism, energy or natural capital.
Diversification more generally is rarely about wholesale abandoning of tradition. Rather, it is about using existing assets well, taking informed decisions, choosing structures that support growth while protecting the core business, and planning for the practical responsibilities that come with expansion.
With careful planning, early conversations and timely advice, the new ideas of an energised next generation of owners can be embraced, while preserving the foundations, values and legacy that made the business successful in the first place.
*Originally featured in Scottish Field.
