Is your child taking on more responsibility in your business? It might be time to review how their role is defined.

June 25, 2024

So, you’ve taken the step to start implementing your succession plan and your children are part of that plan, but have you clearly defined what role your children will take in your family business? Working closely with family members can be straining on the relationship, to mitigate potential disputes we recommend you clearly set out the roles and expectations for each person working in the family business.

Succession planning can be a complex process, with many moving parts. It is not as simple as signing the plan and putting it in the drawer. Quite often we encounter rural families who have had their children working for them for many years, so when it comes time to bring your child into a position of control in the family business you might think this is a simple step for them to take, as they already know ‘the ropes’. This is quite often not the case. Transitioning from a ‘worker’ to someone with influence over making business decisions takes time and training. The first step in this transition is to clearly define your child’s role in the business and set your expectations for them.

Defining your child’s role and setting their expectations in the business includes working with your child to reach agreement on the following:

• Role: Your child may have many roles in the succession transition phase. These may include roles as an employee, director/partner or investor.
  • Employee: Your child’s role as an employee should be clearly defined, with a supporting employment agreement which addresses the child’s job title (e.g. Farming Manager), day-to-day responsibilities and salary package.
  • Director/Partner: As you gradually pass control of the business to your child, you may include them as a director, trustee or partner of the trading or asset holding structure. Involving the child at this level includes them in the business decisions and invites them to participate in those decisions with you. It will also expose them to the risks resulting from those decisions.
  • Investor: In an investor role, the child may start participating in decisions in relation to:
    • retaining sufficient earnings for debt reduction, capital expenditure and improvements;
    • declaring dividends and/or trust distributions to the family members working in the business; and
    • building wealth outside the business.

Salary package: It is important to set out clearly the expectations regarding your child’s salary. We generally recommend that each family member receive a market-based salary for their role as agreed and reviewed regularly. You should consider the full package including superannuation contributions, annual leave and any other employee entitlements such as a vehicle and accommodation. We explore this further in a separate bulletin on employing family members.

• Board
  • If your child is to participate in the decision making of the business, having them included in director/partner meetings is a good starting point to introduce them into the business so they can start learning how you make decisions.
  • You may not currently have a board structure in place, but it is something you should consider to provide structure to your business decisions.
  • The board should hold regular meetings to discuss decisions to be made in relation to the business. You may have ‘heads’ of each area of your business (e.g. farm manager, livestock manager, finance etc) who provide a report of key information at each board meeting and run through the decisions which need to be made.
  • We recommend you have a set meeting agenda to cover off on the key items in each meeting, providing clear structure to the meeting.
  • You should discuss with your child and resolve how decisions are to be made (e.g. will your child have an amount they can spend in the business, before they need to report to the board or seek approval).
  • Remember, you are working with family. Save the business chat for the next board meeting and keep dinner time sacred (if you can!).

Defining any role in a family business is a moving feast and should be reviewed regularly. Working closely with family members can be straining on the relationship, to mitigate potential disputes we recommend you clearly set out the roles and expectations for each person working in the family business. If you are considering your succession plan, the points outlined above are some areas to address within your succession plan deed.

To find out more about more about Succession Planning, you can read our 4-part series here or contact a member of our Agribusiness Team.

Stay tuned for our future bulletin where we will discuss the ‘Why’ and ‘How’ of employing family members in your family business.