Farm Succession 1-2-3

Posted on: September 18th, 2012 by Richard Cressman

In the past 15 years the term Farm Succession has been tossed around in many farm circles. Government programs have been spawned to address this topic. Consultants have written articles and held seminars on the topic.

Farm families have been confused and many have tried to ignore the topic of transition. Some farm families have moved forward and addressed the legal, financial, and emotional issues in a positive way. On these farms the transition from one generation to the next has been virtually seamless. It just seemed a natural extension of the day-to-day operations of the farming business. On other farms it becomes a tug-of-war between the generations with much emotional and mental energy expended.

To get a handle on this complex topic distilling the Farm Succession process into three basic questions can be helpful.

  • “Is the farm business profitable and can the cash flow support the additional income for those who want to join the business?”
  • “Is the dream of the younger generation powerful enough to get them out of bed each and every workday for the next 20-25 years?”
  • “Can a financial deal be put together that will allow mother and father to sleep peacefully each and every night for the rest of their lives?”

 

Regardless of how difficult or complex the transition process is, it always seems to come back to these three questions.

The answer to the first question is obvious. You must start with a financially viable business or be able to expand it in a profitable manner to support all the individuals who are going to be a part of it.

The second question addresses the passion that the younger generation has – do they have what it takes (passion, desire, ability, and know-how) and be willing to get out of bed each morning and make it happen? Running a business takes more than just a dream. It takes the dedication to block out the distractions and forge forward.

The third question is the most challenging to address. Far too many times when the cash flow is tight, mother and father will under estimate or lower their retirement dreams and expectations to allow the younger generation to carry on the business. The other part of this question is whether the parents are totally confident in the ability of the children to make the business a success. It is not uncommon when parents are confronted with the question, “do you have any doubts whatsoever that your children can make this go” to hesitate before answering. It is this doubt that can cause parents to lie awake at night hoping and praying they have made the right decision in passing on the farm versus selling and having a very comfortable financial retirement for themselves — and providing a substantial inheritance for the children.

Yes, it is simplistic to distill the transition of a farm business into just three questions, but these questions do drive home the key points many families tend to skirt around when addressing this massive topic.

From my experience sitting at kitchen tables I do believe the most important question is the third one, “can a financial deal be put together that will allow mother and father to sleep peacefully each and every night for the rest of their lives?”