Plan for succession before the need arises
As sad as it is when a parent dies, it’s even more tragic when succession plans either aren’t in order, or haven’t even been discussed. That happened recently to one Midwest farm family: An heir had been working on and managing the family farm for years, but after his dad died, his siblings wanted their share of the property value. It meant another family farm that could have stayed in the family with proper planning would have to be sold.
“I’ve seen this happen time and again,” says Farm Journal Economist Bob Utterback, who has worked with countless farm families over the years. He says these six preliminary steps should occur before the actual succession of the business takes place:
1. Soul Searching. “What do both parties ultimately want, and are those goals compatible?” Utterback asks. “There is a process to this decision.” This conversation should take place when the young man or woman is in high school or sooner. It involves finding out if the child truly wants to take over the farm at a later date, and if the parent is emotionally and financially prepared for the child to come back.
“A key to the success of a two-generation business arrangement is a common understanding of where the business is going and what it will accomplish,” writes Don Hofstrand, Iowa State University Extension farm management specialist, in the publication “Two Generation Farming.”
“If the parties involved have different ideas about the future of the business, the business arrangement may fail,” Hofstrand says.
Because older generations can be reticent when it comes to difficult conversations, it might be up to the son or daughter to broach the sensitive topic of farm succession. Many resources are available, including the Farm Journal Legacy Project and the Beginning Farmers Organization, to help you begin the process.
2. Off-Farm Employment. The young person should spend three to five years working away from the farm, Utterback strongly recommends, and “preferably in a related agribusiness in which they’re developing skills they can bring back to the farm, if that’s what they decide to do.”
Gary and Crystal Dell are thrilled their son, Gregory, is part of their diversified farm operation near Westminster, Md. They were adamant, though, in requiring him to work away from the operation to make sure farming was what he really wanted to do. Gregory worked for another farmer for a few years after high school, and that experience solidified his desire to come back to the Dell operation.
“That time away definitely helped me appreciate what I have here,” he says. “I learned a lot and have ideas of things I want to do on our farm.”
3. Advanced Training. Farm operations are complex businesses and it’s not enough to simply want to farm. The young person needs to be willing to learn new skills, such as marketing, to successfully run the operation in the future. He or she needs to develop a diverse skill set.
“Develop a network of experts in different fields your son or daughter can talk to and from whom they can learn different skill sets,” Utterback suggests. “These diverse interactions help the young adult learn what he or she loves doing the most, as well as what they don’t like doing. There might be certain tasks for which the best decision is to hire an outside expert.”
4. Mutual Respect. If both parties have agreed on their mutual goals, both personally and for the farm business, then despite differences, they can use mutual respect as a solid foundation from which to build their succession structure. Communication and listening are important skills to develop through the process. When both parties listen, they can make sure the needs of each are being met in terms of the farm business.
This process helps make sure people are on the right seat of the bus and are doing the work for which they’re most qualified, experts agree.
Understanding what makes each family member “tick” is an important component of effective communication, says Paul Neiffer, a tax principal with CliftonLarsonAllen and Top Producer columnist. “Determine the most important values and priorities for each family member; some of them might surprise you,” he says.
5. Not Just Aptitude, but Desire. “People don’t go into agriculture because they have to—they go into it because they love it,” Utterback says. But because agriculture requires a diverse skill set, not everyone is going to be great in every aspect of the operation. He tells of one farmer who has been a “hard charger” with a big personality. The farmer’s son is soft-spoken and a good communicator. The son now has the responsibility of working with their landlords because he has the personality most suited to working with people in negotiation. Both parties are happier as a result.
6. Taking/Giving Up Control. Building a sound succession plan is more psychological than financial, and it’s a work in progress that takes time, Utterback points out. “Both sides will often feel frustrated but it’s just part of the process. Bottom line, it’s a process worth doing and both parties need
to be patient.
Utterback says it’s a matter of keeping the end in mind.
“If these things aren’t accomplished, what are the implications?” he asks. “The farm gets sold to a larger operation and family members move away from the area. When you think about the potential multinational entities that will own these farms in the future, it has a ripple effect on local communities and services.”
On the other hand, “If they can make it work, it can be a beautiful experience,” Utterback says.