Andrea D. Foore | Posted on May 24, 2021
Family owned farms have always been a staple to the American economy and culture. In fact, according to the U.S. Department of Agriculture, 96% of farms in the United States are family owned. However, the reality is that few farm businesses survive their founders due to a lack of interest or capital from the next generation or, in many instances, the absence of a succession plan. The goal that most parents have for their children to take over the family farm requires more than just dreams. Today, you must have a concrete succession plan to preserve your agricultural legacy. Emphasis on the word “today”!
As a member of the fourth generation to live on my family’s farm, this is a topic that is near and dear to my heart. In my role as a community banker specializing in agribusiness, I often work with my borrowers to assist them in transitioning from one generation to the next. Common road blocks I have encountered include heirs not wanting to start the conversation and make their parents feel like they are kicking them out of the farm. Another frequent barrier is the current owners’ unwillingness to give up control. While it can be intimidating to talk about the future, starting the conversation is the first step in preparing the next generation of operators and stewards of the land.
It is important to meet as a family and have an open and honest discussion about what you envision for the future of the farm through the next 10 to 15 years. Topics to be discussed during the meeting should include goals for succession, ownership of assets, debt position, and a target retirement date for the current owners. It is also critical to conduct a power audit to determine an individual or team who will control decision making. The power audit should also discuss various scenarios and anticipate disruptions in the shift of ownership.
In order to develop a new farm manager or management team, there are some key steps that should be taken. First, current leaders should assist them in developing their management skill set and allow them to be a part of the decision making process rather than deferring to current managers. Additionally, the new generation should participate in cross-training as it is vital that they have experience in all parts of the farm operation. The most important step in a farm transition is developing an effective communications system. Establishing weekly meetings for review and updates keeps everyone on the same page and provides a forum for questions.
Perhaps my most important recommendation would be to develop a farm advisory team of experts to assist with the various steps of the succession planning process. The team should be comprised of valued advisors you respect, and those who will work well together. Members could include your banker, wealth management advisor, accountant and attorney. There are many questions and topics of interest to be addressed. Have you saved enough for retirement? Where will you live? How will you pay for long-term healthcare? Should the farm be structured as a sole proprietorship, LLC, or corporation? How will you transfer assets? These are just a few examples of questions that these subject matter experts should be able to help you answer.
Owning a family farm is truly something special and a tradition that many farmers would like to continue for the benefit of future generations. For this reason, investing in a viable succession plan for your farm is essential to ensuring a lasting legacy. Begin having those important discussions today to develop a functional and family-friendly succession plan for tomorrow.