Succession planning is one way to help keep the next generation on the farm and meet the financial needs of all the family members, says Dr. David Fernandez, University of Arkansas at Pine Bluff Cooperative Extension Program livestock management specialist. "There are seven steps to creating a farm succession plan," he says.
First, find out if the farm business is profitable. If not, figure out how to correct the problem or perhaps sell the farm while it can still contribute to the retirement needs of the owner. An Extension fact sheet, FSFCS40 Preparing Family Net Worth and Income Statements, can help you determine profitability and net worth.
Second, involve all the family in planning the succession of the farm business. Plan a succession meeting just like a business meeting. Extension publication, FSHEC110 Communicating About Money, can help with the initial stages. Prepare an agenda. Hold the meeting somewhere other than the family home, perhaps a state park or inexpensive resort with a meeting room. Not only can the family conduct its business, but the day can be capped off with a family gathering.
"Done right, family business meetings can strengthen both the family and the farm business," says Dr. Fernandez. Consider having a professional mediator on hand if you do not feel the family can deal with an issue peacefully.
Third, develop an asset transfer plan. Farm businesses have lots of equipment, land, animals and other assets in addition to money. Very rarely would you want to transfer all of the assets at once. Plan for the transfer of tax liabilities as well as for nontangible assets, such as unspoken agreements with neighbors, suppliers and feed stores. Consult a tax professional to avoid paying excessive taxes as you gradually pass your assets to your successors.
Managing a farm is complex. Fourth, as you transfer assets, develop and execute your retirement plan. Fifth, take the time to develop the management expertise in younger family members.
Sixth, have a contingency plan in place for your succession plans to cover any foreseeable problems. And last, develop a timetable for putting your succession plan in place.
"A timetable provides landmarks where you can evaluate your progress and make changes as needed," says Dr. Fernandez.
A good succession plan can help meet retirement goals, provide for the goals of the next generation of farmers, and strengthen family and the farm business. Clear and open communication among family members, and respect for all will provide the peace of mind and a farming legacy that will last for generations.