Succession planning is one of the most important topics in agriculture, yet it’s one of the least talked about topics. Advisors suggest starting the conversation early to avoid surprises.
Among the farm and agribusiness circles, one of the most difficult and intimidating topics to discuss is succession planning. It isn’t talked about much, but when it comes down to it, it’s always better to have a secure plan in place for the next generation of farmers and businessmen alike.
Yet, how do you get started planning a successor to the farm? When should you start, what are the steps, and what happens next?
In order to break the ice when it comes to taking about succession planning, American Seed interviewed three different succession planning consultants to learn about the most important pieces of information needed in order to begin planning for the future.
With succession planning seeming awkward and uncomfortable to start, what’s the first thing that needs to happen in order to open the door?
“I recommend they start with a conversation usually among owners and family members working in the operation about their goals,” says Kevin Spafford, CFP at Legacy by Design, LLC. “Most owners want to create a retirement option that allows them to continue working in business while enjoying the lifestyle they’ve come to appreciate.”
Spafford notes that by conversing about the future, it’s easier to put plans into action, instead of leaving the succession up to chance.
“Families need to talk, listen, and respect each other through this process,” says Dennis Henks, CFP at Lincoln Financial Advisors. Right off the bat, they should talk about their goals and timeline, as well as what they each expect from this.”
According to the latest Ag Census from the USDA, the age of the average farmer has been increasing since 1982—the average age of a farmer in 2017 is approximately 58 years old. As the average farmer gets older, the more necessary this discussion should be.
“Succession planning protects the legacy of what you’ve worked so hard to build,” says Mitchell Horst, president and co-founder of Select Wealth Advisors. “It protects the company, but you also have people you want to take care of. If you’re the owner, you want to come to the table and make sure that expectations are laid out.”
With the average age of a farmer standing at 58 years old, it’s necessary to begin succession planning in order to protect the company and potentially the family’s future. Succession planning eliminates the “what if” questions such as: what if someone passes away suddenly? What would happen to the business?
“It’s unfortunate if someone passes suddenly,” says Henks. “In succession planning, you always have the Plan A if everything goes perfect – mom and dad live to be 100, child can take over, etc. But there needs to be a Plan B in case something doesn’t go right.”
By planning early, there’s still the possibility of having missteps. Yet, there’s also the possibility of having multiple plans. That way, if one falls through, there’s the possibility of having multiple backups. Henks asserts that having a backup is necessary in case the next generation has an unforeseen event prior to the senior generation passing the torch.
“Most owners want to create a retirement option that allows them to continue working in the business and design a plan to transition the ownership of operation to family members in the next generation who are active and involved in the business,” says Spafford.
Planning a Timeline
Most consultants don’t have a standard timeline when it comes to starting the succession planning, it varies from consultant to consultant. So families need to determine who the best consultant would be for their specific needs.
“It’s more important to make steady progress and work towards achievable objectives,” says Spafford. “The succession planning process includes four integral elements: financial plan, ownership transition, leadership structure, and estate tax plan.”
Horst notes that it takes a long time to plan for your successors, so it’s better to get started early. “You’ve got to have it basically cooking for ten years. By the seventh or eighth year, you really want to start taking a step back to see if it’ll float or sink under new management.”
Henks believes it takes even longer. “To be the most successful, it’s really a 30 to 40 year process. It starts when your children are young and impressionable. Introduce things little by little. Be positive, instill pride. Give them minor chores that will help them learn responsibility. As they reach high school continue to provide more opportunities,” he says. “Be sure to talk about the finances, let them set in on planning meetings. Encourage them to attend college or a trade school and to work for someone else for 3 or more years. Be sure during this time to keep them involved, continue inviting them to take part in planning meetings. You want them to know that the business of farming is a great life, and that the door is always open.”
Above all else, Spafford asserts that the most important aspect to succession planning would be to take action and make progress. “Every meeting should end with a next meeting scheduled. Every action should have a person responsible for making it happen. Every person should be willing to shoulder some of the load.”