For years, the lifecycle of an ag producer is constant. Winter planning leads to spring planting, summer growing and fall harvest. As time goes by, the need for a farm succession plan becomes more imminent.
Succession planning is not necessarily a fun project. Depending on the size of the operation, it can involve a handful of external consultants or professionals in addition to tough conversations with family members. But, it is an essential part of making sure the farm’s legacy of success continues into the future.
Before you embark on a succession plan, make sure you’re ready to assess your current situation with clarity. Remember that the long-term goal of the plan is to reduce stress and ease decision making at a time when emotions may be running high. You’re making tough decisions now so that you or others don’t have to later.
Building a strong farm succession plan involves three major steps before implementation.
Before getting into the nitty-gritty, start by thinking about the big picture of your operation. What type of entity is the business, what are your enterprises? Is the farm financially viable or are there threats? Have you already made any decisions about the operation that you can write down and cross off your list? Also take stock of what your role is and who other decision makers are.
After crafting an overall picture of the business, then compile a list of your assets and liabilities, such as land, buildings, animals, and other property.
Once you assess the farm’s current situation, you’ll also have to think about yourself.
When do you plan to shift out of your current role, and will you go into a more limited one or out of the business altogether? Taking on fewer responsibilities can be a useful transition tool for both you as you step back without letting go completely, but also for your successor to be able to learn from you while running the operation in their own right.
Also think about your own financial security. Take stock of your retirement savings and determine what your future needs are.
Finally, before you begin developing a plan, gather all documents you may need in this process. These can be personal or business documents, including but not limited to, health records, tax records, life event certificates (birth, death, marriage, divorce, etc.), insurance documents, titles, payroll, and contracts. Anything important related to you and the business that is written out on paper (or digitally) may be helpful to have in one place during this process.
This is where you draft your legacy. What is important to you and your family about your farm? What do you want to happen? Will the operation stay in the family or be sold to a third party?
There are a number of values one can choose to prioritize in a succession plan. You could decide you want the operation to stay the same under new ownership, or you could decide you don’t care about how it’s operated after you step away so long as your costs are minimized. Some values may conflict, such as wanting to find an external party to take over the farm and also wanting to stay heavily involved day-to-day. But this is the time to develop compromises to fulfil all your values.
It’s also important to remember that equality is not equal to equity when dividing a farm between heirs. If there are multiple potential heirs, talk with them and see how you can preserve their positive connection with the farm without causing tension between the individuals.
Determine an offer for your successor, and if needed, get the word out to external parties. Do your due diligence in selecting someone who is both interested in and capable of sustaining the farm’s operation long-term.
After developing your plan for your farm, remember to make your plan for your retirement. Compare your current income and expense streams to what you expect them to be in retirement, and ensure that you can maintain your livelihood during and after the transition.
Talk with family and business stakeholders about the transition, present your plan, and make sure everyone is on board. Then, begin reaching out to professionals for implementation. You may need to find one or more attorneys, financial advisors, tax professionals, insurance agents, business management consultants, or lenders depending on how complex your operation’s structure is.
Then, all that’s left is to implement the plan.
Check out our 2024 Farm Succession and Transition Planning interview with Mike Downey to learn more about factors to consider in succession planning. You can also reach out to your local Extension office to see if they have any resources for farmers in need of developing a succession plan.
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