Whether retirement is near or far, thinking about who will take the reins and lead your farm into the future isn’t easy, but it’s especially relevant these days. According to the USDA’s National Institute of Food and Agriculture, approximately 70 percent of U.S. farmland will go on the market in the next 20 years as the nation’s farmers age. Without a succession plan, many family-run farms are likely to go out of business, be bought by larger farms, or get turned over to real estate developers or other purchasers for nonagricultural use.
With a solid strategy in place to identify, develop, and groom the next generation of leaders and owners, your farm is more likely to achieve longevity and success. Indeed, those who translate their vision for long-term prosperity into a detailed succession plan can not only resolve uncertainties about the future of the business but also enhance its long-term performance and health.
A plan also helps the farm prepare for other future challenges, such as securing access to capital. Beyond assessing whether a business has a sustainable competitive advantage, dependable cash flow, and solid net worth, lenders often look for a succession plan when determining the amount of credit to extend. A formal plan, accompanied by the development of key successors, will go a long way toward demonstrating long-term financial viability to your bank or other lender.
While succession is a natural stage for most kinds of businesses, it represents unique territory to farmers, for whom the success of your business can be much more closely tied to your personal wealth. Thus, it’s important to begin well in advance of the transition, since many of the important issues may take time to talk through and evaluate, including:
Start with written goals that establish a timeline for your exit, identify your successors’ responsibilities, and determine what credentials they should possess. These goals will ultimately serve as benchmarks you can use to track progress and guide future business decisions.
By definition, succession is about change. It will be important to consider how the business might need to change or grow in the years ahead and what skills and talents its future leaders will need. Planning for succession will provide natural opportunities to make changes that strengthen leadership performance for the long term, ensuring the company has the right people in the right positions at the right time.
Your succession plan should also provide for an orderly exit of owners and leverage exit strategies that enhance the company’s value in the process. You’ll want to carefully evaluate your exit alternatives, which may involve selling all or part of the business to existing management and employees, a financial or strategic buyer, or family members.
Family-owned farms often want a successor from within the family. While some family members may not have an ownership role or even work on the farm, they may still have considerable influence on its future. A family business owner must strive to meet not just the different needs of management and ownership but also those of a third stakeholder: other family members.
A family conversation can be a good first step toward navigating the process of succession planning. Inviting all stakeholders to engage in the conversation together allows everyone to offer his or her input about the plan.
Every company has a different financial scenario, operations, motivations, and leadership team requirements. An advisor can help you develop a customized plan: one that fits your business and helps you build a legacy that’s just as unique. Ask yourself:
Jay Silverstein has over 21 years of experience serving the food processing and agriculture industries. He specializes in business succession and estate planning. He can be reached at (707) 535-4115 or firstname.lastname@example.org.