CBC Commentary: How Big a Deal is Succession Planning

Posted on: July 8th, 2009 by Richard Cressman

Everyone agrees that it’s important to make the basic arrangements for passing on the farm to the next generation. But many farm families don’t treat succession planning as that big a deal — after all, farmers have been handing down their farms to their kids since agriculture began.

But times have changed a lot. There probably isn’t any other business today where so much capital is invested per meal ticket.

A carpenter may have to buy a van full of tools and a trucker, a rig worth $150,000. But on the average farm in Ontario today, one income is going to require capitalization of anywhere from $500,000 to $2 million.

And when you go into a farm partnership with a family member, it’s not for a season or two. You’re going to look at a 25-year plan.

This is true even if only one of the children is going to be actively farming. Farms are so highly capitalized that very few parents will have enough assets outside the farm business to give their other children even a semblance of an inheritance. In other words, even if only one child farms, his or her siblings are almost certainly going to end up as partners.

Setting up that partnership so that everyone is happy isn’t easy. Creating a partnership that will endure is even harder.

For example, say you have two brothers who undertake a major expansion and it works out great. A few years later, one brother is all set to expand again, but his sibling shocks him by saying that he wants out. It turns out the other brother nearly got an ulcer worrying about the first expansion and it put his marriage under a lot of stress. The second expansion is a great idea, he says, but there’s no way he’s going through that again.

Or maybe the farm’s not going well and the off-farm sibling is so concerned about his brother’s well being that he starts pushing to sell the farm. Then there’s all the disagreements that start over whether to buy a new tractor, or add a new crop to the rotation, or who gets to build a new home and who stays in the old place.

That’s why I believe that succession planning should begin when the kids reach school age. As parents, you have to teach your children how to get along and how to keep getting along when something changes. Because changes will come, and keep on coming.

The way they farm will certainly change greatly over the coming decades. The financial situation will probably go full circle a couple of times. And your children will change their views, their priorities, and the way they relate to each other won’t stay the same forever.

There are three elements in succession planning and these are what they are:

The first one is communication, the second one is communication, and the third one is also communication.

So start the conversation as soon as you can by asking the most fundamental questions. Why do you want to farm? What do you expect to get out of it? What are you prepared to put in?

And teach them to keep asking those questions of themselves and their family partners because, as the years go on, the answers will keep changing.

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