A multi-generation family farm can only be crafted if it is passed down from one generation to the next. You might spend an entire lifetime working to build an operation that is successful enough to one day pass down to your children. But here’s an important question to ask yourself:
What if your child doesn’t want the farm? Or, better yet, what if you child wants it, but has a different vision for it?
“When we pass down the family farm, we often think we are giving our children a huge gift,” says Shannon Ferrell, professor of agricultural economics at Oklahoma State University. “But if we don’t have a good succession plan set in place, we’re actually giving our children a huge burden.”
According to Ferrell, two-thirds of farmers do not have a plan in place as to how they will transfer their massive asset base onto the next generation. In addition, 88% of farmers do not have a retirement plan of any sorts, he says.
“I come from Oklahoma where we have lots of cattle raisers and beef farmers and I have never met a retired farmer in my life,” he jokes. “How often do you run across a truly retired dairy farmer? Never.”
While the task of creating a succession is a daunting one, Ferrell says it is fundamental for every enterprise.
“Everyone needs to have some sort of plan as to how they will transition the farm from one generation to the next,” Ferrell explains. “We always tend to think about death as being an “if” question. Not to be a bummer, but it’s a “when” question. So, you’ve got to be prepared for the when.”
Although no farmer wants to think about what the farm will be like without them running it, preparing your successor to run the farm is imperative. Here are five steps to help create a successful transition from one generation to the next:
1. Determine where you are now.
“It’s hard to know where you are going if you don’t know where you are,” Ferrell explains. “Do a complete 360-degree assessment of your farm. Know every asset, find every title document and know their market value and tax basis.”
Ferrell also recommends building the relationship between clients and vendors with the future successor.
“You can’t just walk into one of those relationships when you’re the new owner. Warm your child up and make that introduction. Get those relationships started.”
2. Communicate with stakeholders.
“Farmers and ranchers are some of the bravest, hardest working people on the planet, but when we tell them to talk about their feelings, they run screaming to the corner and hit the fetal position,” Ferrell says.
While talking with your family can be challenging at times, Ferrell suggests asking these two questions to gain a better perspective of your child’s position on the farm:
- What do you view as the future of this farm?
- What do you view as your role in it?
“Human beings need choices,” Ferrell explains. “If you don’t give your children some level of choice, they will fight your plan. And that’s how we get battles that last for decades and really drain the assets of an operation.”
3. Develop a business succession plan.
“When we talk about a transition plan, what we’re talking about is a transition into the business, not just a transition from family member to family member,” Ferrell explains. “At the same time, however, we’re trying to transition your personal ownership of assets into that business.”
One thing farmers don’t often consider is placing an exit strategy within the plan. Ferrell suggests providing a way for people to leave the business if they want to.
“If someone doesn’t want to do business with you, you don’t want to do business with them,” he notes. “Don’t keep the business together at the expense of keeping the family together.”
4. Develop a plan for your estate and gifts.
As you start mapping out your plan, Ferrell recommends writing a “Who gets what list.” This should include beneficiary designations, guardian nominations for children under the age of 18 and establishing a will.
“Everybody needs a will,” Ferrell notes. “I don’t care if you have everything in a basic trust. If you forgot to put anything in your trust, then you are trusting (the successor) to deal with it, and that might be against your wishes. “
5. Deploy your plan. Evaluate. Revise.
Once a succession plan is created, that does not mean that it is necessarily complete. Ferrell proposes looking over the plan on a yearly basis to make sure it is up to date as time progresses.
“As you go through this process, make sure that anytime someone is born you check your plan,” he says. “Anytime somebody dies, check your plan. Anytime somebody gets married, check your plan. Always keep checking on the plan!”
Shannon Ferrell spoke at the 2019 MILK Business Conference. Don’t miss next year’s event. Mark your calendar to join us in Las Vegas, November 16-18.
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