Farm Journal is celebrating the next generation of American agriculture. Our goal is to encourage you to plan for the future and cultivate multigenerational success through the transfer of skills and knowledge. Think tomorrow, act today to align your asset, resource and financial legacy.
Before you handover the keys or step aside for the next generation, make sure you and your family are properly prepared for what comes next. Elaine Froese is a farm family transition expert, speaker and host of the Farm Family Harmony Podcast. She says we’re in the middle of agriculture’s “great wealth transfer” but there’s a serious lack of communication between generations.
“Often there are so many plans to be started that farmers are stymied, overwhelmed and anxious,” Froese says. “I’ve said many times that procrastination and conflict avoidance are killing agriculture.”
For those ready to be proactive in preparing for a farm transition, she recommends these five steps.
1. Calculate Your Income Stream.
Froese says farmers need to determine how they’ll maintain and secure a stream of personal income. Is that coming from their personal wealth or a combination of personal wealth and income from the farm. Once that’s sorted, farmers need to figure out what their living expenses really are apart from the farm.
“They have to figure out their own lifestyle costs first, where they’re going to live and what their lifestyle is going to be,” Froese advises.
2. Define Your Role.
Retiring farmers need to clearly define how they’ll show up for the operation after “retirement” from running the day-to-day. Does that mean fully stepping away, serving as a manager or simply as labor when needed, Froese asks.
“Many farmers who are male have their identity tied up in what they do,” she adds. “They have no capacity or understanding of how their roles are going to shift as they age in place at the farm.”
3. Talk to Your Spouse.
Retirement isn’t a singular decision. Froese says it’s important to discuss the transition to retirement with a spouse or significant other. He or she might have their own ideas of what will or should happen in retirement.
“They need to embrace a vision with their spouse because if the older farmer does not want the same thing as the older farmer’s spouse in regard to what their future role is then that transition plan is essentially stalled and not going anywhere,” Froese adds.
4. Build a Business Plan.
During a transition there will be differing opinions and passionate feelings about the direction of the farm. Froese says that’s expected and farmers need to remember different isn’t wrong, it’s just different. She recommends next-generation farmers bring a business or enterprise plan to the table that explains their intent for future growth.
“When you bring somebody back to the farm you need to generate at least $500,000 in additional gross income to support that new family,” Froese says. “People often do not pay attention to how many families a farm business can support and the level of support expected.”
5. Discuss Future Debt.
As a farmer transitions out of the principal operator role and focuses on retirement, often their risk tolerance for debt decreases. Taking out loans against the farm’s assets for expansion or technology upgrades might feel risky or even irresponsible. Froese says debt loads should be discussed and decided upon early in the transition.
“Many older farmers don’t want anymore debt, and they have it in mind they don’t want to pass debt on to the next generation,” she says. “But where is it written that the younger generations can’t manage the debt?”
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