I have invested years searching for solutions to the succession planning puzzle—a problem that plagues many farm families. What I found at first was not as instructive as it was alarming. I discovered that not only is the succession challenge a looming crisis for families, it may well be a ripple in the pond that further affects the U.S. economy.
We all know that most farms are family-owned and -operated. What you may not know is that family businesses make up 80% to 90% of all business enterprises in North America, and they account for 62% of the
workforce in the U.S.
Post–World War II entrepreneurs, the current owners of most farms, must decide how to best pass down their ownership interest. In my research, I found that the three leading causes for failing to transition a business to the next generation are an improper estate plan, insufficient cash flow and failure to prepare the next generation for leadership. Add to this the unique culture of the agricultural industry, and you have a recipe for disaster.
During the past five years, I've met with numerous farm families and, though each family is unique, the reasons for not planning boiled down to a few common explanations.
1.Succession planning is often confused with estate planning. The goal of succession is to transition a going concern to a prepared next generation; estate planning minimizes the amount of taxes to be paid in case of a premature death in the family.
2.Most families rely on advisers, such as CPAs, attorneys, etc., for help. However, due to the emotional roller coaster of succession planning, most of these advisers are not willing to engage in the process.
3.Tools and techniques used in succession planning are undefined or are not readily available.
4.Many farming operations are built around preserving a lifestyle, rather than generating a return on investment.
5.Leadership training often consists of good parenting and a strong back, not a development plan necessary for success.
A properly designed and judiciously implemented succession plan creates a better outcome for farm owners and their successors.
The primary purpose of succession planning is to preserve, protect and promote the family's most valuable asset. It removes uncertainty, mitigates risk and allows the owner to exercise control. It encourages the owner to plan for success and enjoy life.
A succession plan is more than just a binder full of legal documents and a life insurance policy. It's dreams to realize. It's business goals to attain and leadership capabilities to develop. It ensures a family's financial security and the operation's capital resources. Planning for succession is a big step on the road to long-term success and creating a lasting legacy.
The Farm Journal Legacy Project is designed to provide valuable tools and no-nonsense succession solutions to farm families. Our goal is to help you preserve, protect and promote our agricultural resources. Never has the challenge been so big and the obligation shouldered by so few.
The family farm in 2010 is not the quintessential picture from the 1950s, but rather a vibrant business with professional management, skilled employees and growing capabilities.
Prepare the next generation for leadership in the agricultural industry. Real, quantifiable measures of professional growth and development (encouraging specialization and mentor/protégé relationships) are crucial when passing down the wisdom and experience necessary to manage food, fiber and fuel demands.
Promote the concept of the "agripreneur"—the entrepreneurial visionary willing to take risks and step out from behind the mentality of "This is how it's always been done."