Building value and securing a legacy that lasts is a huge motivator for many farm owners. But there is more to continuity than choosing your successor – you also need a transition plan.
No farm owner goes through the blood, sweat, and tears necessary to run a successful farm business without hoping that it will endure for many years to come. They may have even identified and designated who will inherit the operations when they retire, but they may not have planned how that person or team will assume the helm when the time approaches.
For any business, operating without a transition plan can bring about uncertainty, generate conflict, and threaten future success. Starting the process of transition planning might be intimidating, but it’s essential to ensuring the continuity of your business.
Establishing a transition timetable
Whether you’re just getting started thinking about what comes next or your bags are packed for your first post-retirement vacation, it’s important to have a timeline for your transition. Your timetable should be established for accomplishing each stage of your transition process. A good transition plan requires time to develop and execute, and given the intricacy of most farm operations, the process could take years to complete.
Using that time wisely
Once you’ve determined how long your transition might take, you have to determine what you’re going to do with that time. It’s critical that you plan for knowledge transfer.
In your time as a family farm business owner, you’ve undoubtedly accumulated invaluable institutional knowledge that keeps your business surviving and thriving. Without it, you would never have gotten where you are today. It would be a shame if all of that hard-earned knowledge departed your business with you.
Passing on this institutional knowledge to your successor is critical to your family farm’s success. It allows employees to build on pre-existing solutions already known to work, which helps ensure continuity and quality as your farm evolves.
Identify the most important jobs that keep your farm running and figure out who does them. Would they be able to run your business without you there to give instructions? Do they have a firm grasp on how the day-to-day operations look, or are they just going through the motions? Make sure that part of the legacy you’re leaving behind involves the knowledge it takes to run a successful business.
Keeping it in the family – or not
Transition planning is a major consideration for all companies, but for family farms, there’s an additional layer of intricacy to take into account.
When it’s time to pass the reins, the lines between business strategy and family dynamics can begin to blur, generating the potential for serious conflict. Even if your loved ones aren’t directly involved in the operations of your farm, how you choose to transition your business will still likely impact them. Open the lines of communication early to get a sense of where your family’s priorities are and what you can do to maximize harmony and minimize any conflict.
If you’re unsure where to start, there are many chapters in business succession planning guides devoted to navigating family dynamics to get you going.
Asset management
Once you’ve considered some of the intangible factors involved in a transition, like family dynamics, it’s time to start thinking about some of the tangible factors, like assets.
Do you have an ownership plan for all your breeding livestock, crop inventories, fertilizer, heavy machinery, equipment, land, and buildings? Do you own all of these items in full, and if not, who else would need to be consulted before a transition takes place? In very few cases does the next generation take full ownership of all of a business’ tangible assets at once.
Consider if you plan to transfer these types of items through a sale, as a gift, or through your estate upon your death. Given the heavy tax burdens likely associated with these assets, make sure to consult with a qualified lawyer and accountant with experience in farm transition planning.
Taking the next steps
Transition planning can seem daunting, but it doesn’t have to be. Tomorrow is not guaranteed, and it’s better to face the music now to ensure your farm’s success rather than put off the inevitable. We don’t always get to choose when or how the transition will take place so having a transition plan will help get our families through those first few months. Cows can’t wait to be milked and crops can’t wait to be harvested.
There are tools and experts out there who can help you get started with your planning process to help ease the transition as you plan for your next act – and the passing of the reins of your business.
