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Your farm’s succession plan is a marathon—not a sprint. A well-developed plan requires time, thought, advice and patience.
Neil Harl, emeritus professor of economics at Iowa State University, has spent his career studying estate planning and taxation, business planning and agricultural law. He says farm operations fall into three major groups, in terms of succession planning:
- Those planning for termination
- Those planning for continuation after retirement or death
- Those that have not faced the issue
“You have to map a plan for the trajectory of the business,” says Harl, the author of 19th edition of Farm Estate and Business Planning.
Ready to get started or continue your succession-planning journey? Follow these steps, Harl suggests.
- Build your management team. Have open and candid conversations about how the work will get done, Harl coaches. Stress the idea of a team approach and focus on developing management skills and routine communication.
- Evaluate the farm business’ value. It is vital to have system in place to evaluate the value of the operation (land, team, assets, etc.) on a regular basis—before everyone decides what they want. Agree on a schedule (ideally every year) and a process (either appraisal, book value, etc.).
- Do a power audit. Who currently has the ability to make decisions? What about in the future? What happens if someone leaves and wants a quarter share of the business? “Look at the power issue realistically,” Harl says.
- Fairly compensate the team. Compensation is a source of more dissident behavior than anything else, Harl says. “Unfairness begins with under compensation to on-farm heirs,” he says. “If it is explained to the off-farm heirs, it shouldn’t be offensive to them.” Every year, you need to assess if everyone is being appropriately compensated.
- Anticipate disruptions. Think through the 5 Ds (death, disability, divorce, disaster and disagreements). “Life has such uncertainty you want to be prepared,” Harl says.
A few other good succession-planning tips from Harl:
- Never transfer assets you’re not prepared to lose, because you may.
- Test against the worst-case scenario of your plan.
- Carry on estate planning and business planning simultaneously, they are interlinked
- Work for a perception of fairness. That doesn’t mean equal.
Jan. 14-15, 2019
Farm Journal offers families an opportunity to take their succession planning a step further. This Legacy Project Conference will dive deep into the logistics of creating a sound succession plan. You’ll hear from several experts who will provide information, insight and answer questions about how to take inventory of your current situation, specific legal and tax tools, how to resolve conflict and pass on your family’s legacy. Learn more about the Legacy Project Conference.
Want to learn more? Here are a few other good succession-planning articles to read:
5 Ways To De-Risk Your Farm Operation by Sara Schafer
Can We Talk? Tips to See a Plan to Reality by Rena Striegel
5 Steps to Jump-start Your Succession Plan by Rhonda Brooks