As agricultural producers start to think about planning for the eventual transition of their operation to the next generation, there are five essential steps that will facilitate a smooth transition and help ensure the financial stability of all involved.
Build a thriving, profitable business. Yes, this is what most businesses aim for, but with agricultural operations, which demand extreme dedication of time and resources, it is even more essential. For one thing, having a profitable business will entice the next generation, family or otherwise, to be interested in taking over rather than pursuing an off-farm career.
A farm is a business like any other, and if a non-family member wouldn’t be interested in purchasing your operation because it’s not profitable, it’s also likely that a family member won’t be, either. That’s not to say that they won’t, but they may be doing so out of obligation rather than passion, which will impact both their long-term success and their quality of life. For the older generation, having a profitable enterprise will mean resources to finance their retirement.
Practice mutual respect. Inter-generational working relationships can be challenging whatever the situation. In many cases, the older generation doesn’t feel respected for their experience and knowledge, and the younger doesn’t feel respected for their new ideas and passion. Even if these opinions don’t actually exist, the perception that they do can be crippling to a smooth transition. Both generations should proactively demonstrate their respect for the other, with the older listening to and perhaps finding initial, small ways to implement new approaches and the younger taking the time to listen and learn from their elders.
Create and communicate a formal, written succession plan. When it comes to the safe transfer of the business you’ve built with blood, sweat, money and maybe even tears, there’s no room for casual ideas about how you’ll pursue the transfer when it comes time to retire. Instead, protect your lifelong investment by carefully planning how you’ll manage the transition, from transfer of management responsibilities to transfer of assets.
Once you have your plan together, share it with all involved parties, including your immediate family members, other relatives who are actively involved in the operation and your employees. You may also want to share it with your accountant, your banker and your attorney.
Define your retirement needs and set your retirement date. Obviously, everyone is going to stop working someday, but not knowing when that day is can cause stress to you, your spouse and your family. Having a firm target date helps alleviate the stress of not knowing, drives transition activities, and holds everyone accountable for their part in the transition.
Start early for a gradual transition process. Without question, agricultural operations are complex. There are the nuances of caring for crops and livestock, the savvy to market and sell, the challenge of business and financial planning and reporting, government regulations to abide by, not to mention labor issues, market conditions and the ever-present concern over weather.
Amidst all this, transitioning an ongoing operation is a highly involved process, so starting early and managing the process over time – even decades – will help protect both the operation and the stress levels of everyone involved. Your transition plan (see Step 3) should outline the process you’ll follow and let everyone know what’s expected. Stick with the plan and the timeline, and enjoy your retirement when the day comes.