Marsha Stanley
With the aging baby boomers ‘Succession Planning’ has become a common topic of conversation. Selling the farm is definitely an option; however, often the farm is being transferred within the family to the next generation.
Your farm is more than a business to you; it’s your identity, it’s your lifestyle, it’s your home and it’s your land. You have been in the driver’s seat for many years and handing the keys over to someone else can be one of the most difficult things you will ever do.
Certainly, the tax and legal issues need to be resolved in a manner most suitable to the family. But from a family and farm perspective, the single most important element of your succession plan is the transfer of ownership and management.
This transfer is not a single event and does not happen overnight. It’s a process. It’s a process that should be started years in advance, and it never actually ends. When a farm is transitioned to the next generation, the process begins again.
Rather than working on a succession plan, the family needs to work on a plan that will ultimately result in the farm being ‘transitioned’ to the next generation. Here are some of the key steps a farm family needs to work through in planning for the transition to the next generation.
The Farm Today and in the Future
Discuss where the farm is today and what it might look like in five or ten years. Look at the financial health of the business and set some goals and expectations for the future.
The Retirement Plan
What role do mom and dad want to play in ongoing farm operations? What cash flow is required to be able support mom and dad in their retirement? Is the farm expected to provide all their retirement cash flow needs, or are there other assets that will generate retirement income?
Training and Development Plan for the Successor
Consider what training the next generation needs to be able to successfully take over day to day management of the family farm. What time frame is required for that training to be completed?
Farm Business and Operating Plan
Based on the information gathered, develop a business plan for the next five years.
Ownership Transfer Plan
Who is the farm being transferred to, how much will be paid and what is the timing of payment and change of control?
Implementation Timetable and Communication Plan
Set a timetable for key milestones and set up a plan for communication. One of the most common pitfalls is allowing everyone to be caught up in the day to day operations and failing to communicate once the plan is set. Your transition plan is a “living” document that needs to be reviewed annually and revised for changes in objectives, business fundamentals, tax and estate laws and your personal situation.
The Road Map
Transition planning is just part of a longer-term or strategic farm plan that includes a transition of ownership and management to the next generation. It should not be treated as an event or ‘one-off’ plan. A well thought out, properly developed and implemented transition plan will simplify your affairs, provide clarity to everyone involved, reduce overall stress, and maximize the chance of you and your family successfully transitioning the family farm to the next generation.
