Most farmers understand the need to properly plan for their eventual succession. However, there still seems to be reluctance for them to actually do it.
There have been many reasons given for this. Oftentimes the reason given is that it is too early to start. Is it really too early or is there just an unwillingness to plan for succession?
All farm owners will have to face the departure from their operation at some point. When that happens, you will want to make sure it is on your terms. The following mainly focuses on family transfers. An outright sale to a third party may avoid some of the issues described below; however, succession planning is still important in these situations.
In our experience we have found that the most difficult issues to deal with when developing a succession plan are the soft issues. These are likely the issues that keep farm owners from even starting the planning process. Planning for succession is a very emotional and at times, a very uncomfortable process.
Owners will likely tell you that the more important issues are the technical issues such as strategies for minimizing income taxes. These are important issues but are usually more easily resolved if the soft issues are taken care of first. It is the soft issues that can derail the best thought out plan.
Soft issues could include things such as unresolved conflict within the family, lack of trust among family members and other key stakeholders, unrealistic expectations of some family members, fear of losing control or fear of putting the family wealth at risk. How do I deal with unreasonable family expectations or the feelings of entitlement that the children may have with respect to my farm? How do I deal with the children who do not want to work in the farm business? What will I do when I retire? Can I continue to play a role in the farm business?
One of the first steps we do when assisting our clients with succession planning is to interview each of the key stakeholders (e.g. family members, key employees, etc.).
We want to identify areas of common interest that can be built on to help move the plan forward and start establishing goals that will give the implementation of the plan focus.
We also want to identify potential obstacles. The potential obstacles are normally the softer issues. If the plan is to have any chance of success these issues need to be put on the table and resolved.
Soft issues normally arise due to a lack of information creating uncertainty and confusion. Proper dialogue among the key stakeholders will fill in the information gaps helping to remove the uncertainty, increasing understanding, reducing potential conflict and allow the participants to move beyond these issues. Ignoring the soft issues does not make them go away. To prepare the right succession plan you need to use a team approach.
A key person of this team would be someone who has facilitation and mediation skills. This person will bring the soft issues to the surface in a constructive manner. Once you start discussing these issues you will be able to resolve them.
Having the right team is important to preparing a succession plan that will focus on the personal and business goals of you and your key stakeholders.
This team would include a group of professionals (e.g. lawyer, wealth management and investment advisor, consultant, accountant, banker, etc.) who would work as a team in developing your succession plan.
The advisors you would select would depend on your goals. Most of the advisors you would work with would normally be the advisors you currently engage who would have knowledge of both your business and personal affairs.
The skills that each of these advisors would bring to the process are very important in coming up with a coordinated plan that is consistent with your goals. But it is important that they work together.
If they are working in isolation telling you what is best, it is very likely that the plan will include recommendations that are not consistent, leading to frustration and possibly abandonment of the plan.
You may also wish to engage someone who has experience in leading teams in preparing succession plans for farm owners to lead your succession team.
It is never too early to start planning for your succession. The earlier you start the easier it is to implement the strategies required to achieve your goals. Succession planning and implementation of that plan is a long-term process, not a one-time event.
Proper succession planning will help you:
– Maintain family harmony;
– Ensure the continued success of the farm operation after you leave;
– Protect the livelihood of the people that mean the most to you;
– Maximize the value you receive on the sale of your farm;
– Minimize income taxes;
– Ensure you have the wealth you require to live comfortably in retirement;
– Meet your personal and farm business goals
– Submitted by Baker Tilly GWD
