I spoke at the Farm Journal Legacy Conference in Indianapolis in mid-November, and it was great to see farmers who are actively engaged in making succession decisions. Farm succession planning is a process that should be started sooner rather than later.
Begin with several key questions. Is there a potential successor interested in taking over the farm? Does the successor possess the needed skills, knowledge and desire to operate a farm in today’s more complicated environment? If not, can he or she learn these skills, or should you look elsewhere?
Remember: This is your farm and you need to protect it, even if it means not having family members run the operation. Is selling the farm an option? How long do you and other operators want to continue running the business—and perhaps more importantly, how long should you continue?
Do These Things. Identify the steps you need to take to be successful. Here are a few ways to move the process forward on your operation.
- Think of farm succession planning as a journey, not a destination. It takes time, effort and often years of work.
- Complete a financial analysis of the past and present farm business. Project where you think it will be in five years. If the farm is not making money or cannot support all of the families involved, what can you do to change it?
- Become educated on succession planning. Participate in workshops and seminars, read articles and stay involved.
- Consider using a family business meeting to open lines of communication. An objective third-party facilitator can help the process.
- Determine the most important values and priorities for each family member. Some of them might surprise you.
- Figure out each person’s personal, family and business goals.
- Address the issue of fair versus equal division of the farm early in the process, especially if non-farm family members are involved.
- Develop a successor development plan for any family members who plan to take over the business. This training and development strategy will provide future operators with the appropriate skills and knowledge to successfully run the farm.
- Discuss various options in a free-form conversation. You will shrink the list down later.
- Assemble an advisory team (lawyer, accountant, financial planner, banker, etc.) to help you in this process. Work with them, communicate regularly and ensure they understand what is wanted. Once you have a clear idea of the destination, your advisers can make the road map to get you there. Appoint a single quarterback to guide the team.
- Consider income and estate taxes but don’t focus on them. It is more important to concentrate on your overall goals and let the team come up with the most effective tax plan.
- Write it down so you’ll be sure to finish it.
Don’t Do These Things. By contrast, here are steps you should not take, with my advice for alternatives.
- Procrastinate. Instead, start planning now.
- Be afraid to ask questions and avoid listening carefully to the answers. You might not like the answers, but they are important to the process.
- Assume you know what others are thinking. Instead, let them articulate their views.
- Be afraid to share the load. Instead, results likely will be better if you let go and allow others to help.
- Define life or family as the farm. There’s more to life than work on the farm, including family, friends, sports (yes, it is OK to golf!), hobbies, etc.
- Put all of your eggs in one basket. Instead, plan ahead, think early about retirement or succession, and save and invest in off-farm assets so you have options.
- Rely on one adviser. A team can do a better job.
A Final Word. Remember that succession planning is a life journey and not an end destination. Enjoy the process and get started now.