The Decisions You Make...

Jul 27th 2011, Legacy by Design

By Kevin Spafford, for AgChoice Farm Credit (Pennsylvania)

“My family has built a successful farming operation. It consists of 7000 acres of corn and beans, about half of which is owned. My parents, both in their late sixties, do not have any plans to pass the farm on to the next generation. Dad says, ‘There will just be an auction, then we part ways.’ My three other brothers and I all work on the farm and have invested some money into equipment and land. Dad owns most of the farm and the equipment. My other brothers and their children have no desire to stay on the farm after dad quits. However, my two sons and I want to continue… My dad is quite stubborn, and he doesn’t believe there’s a future in agriculture. How do I approach this?”

 
This is just one of example of the inquiries I receive on a daily basis asking the how, why, who and when of succession. Multigenerational success is difficult and rare. The process is not easy, and the path is not always clear. Past experience tells us that 70% of first generation operations will not transition to a second generation. Of those that do make it to a second generation, 90% will not go to a third. And, of the meager few surviving after three generations, 96% will not go to a fourth. Though your situation may be different, past experience forewarns a dismal result.   

Succession will not happen without effort, determination and a plan. Noteworthy achievement is difficult in any endeavor, especially related to family, business and/or finance. Combine these highly charged themes with the emotions of family business and you may create a flash flame that, at best, destroys only the business and, at worst, the family. Succession planning can be intimidating. Done wrong, it can be expensive. Done right, it’ll be a rewarding experience for the owner, the family and the farm.    

For this reader, action, no matter how difficult, is critical. Right now he’s caught between a rock (Dad) and a hard place (his brothers who have no desire to stay on the farm). As a family business these people are risking everything. They will lose the farm and future opportunities because they suffer from:

1.     A lack of effective communication.

2.     No focus on common objectives.

3.     A reluctance to face differences and work through difficult issues.  

I recommend this farmer take a stand and resolve that ‘failure is not an option.’ After meeting with countless agribusiness owners, we’ve found that the reasons for not planning boil down to a few common rationalizations. To start with, succession planning is often confused with estate planning. The goal of succession is to transition a going-concern to a prepared next generation. An estate plan is intent on minimizing the estate tax and transfer obligations in case of the owner’s premature death. Though similar, the two pursuits can suggest opposing actions which undermine the long-term viability of the operation. 

Secondly, most families rely on their current advisors---CPA, attorney, financial planner, etc.---for help. They hope these trusted professionals will help facilitate a constructive conversation about succession. Yet, due to the emotional demands of succession planning, most advisors will not engage in the process. They’re not willing to risk a relationship in a pursuit so emotionally charged and difficult to manage. This reluctance leaves most owners confused and bewildered. They struggle to find assistance, and usually give up over time.

Thirdly, until now there were no constructive tools and comprehensive planning models to facilitate the succession planning needs of agribusiness owners. Many farming operations are built around preserving a lifestyle, rather than generating a return on investment. In the past, leadership training consisted of good parenting and a strong back; not necessarily a professional development plan. The complexity of farming requires specialized methods, continuing improvement in leadership and defined methodologies.    

Finally, a reluctance to address the difficult issues in succession (fair distributions, inactive family members and/or in-laws) pose major stumbling blocks for most family business owners. But, a properly designed and judiciously implemented succession plan creates a better outcome for family business owners and their successors. The primary purpose of succession planning is to promote, preserve and protect the family’s most valuable asset. A comprehensive plan removes uncertainty, mitigates risk and allows the owner to exercise control.

A succession plan is far more than a binder full of legal documents and a life insurance policy. It’s founded on common goals and shared dreams. It ensures a family’s financial security and the operation’s capital resources. Planning for succession is a big step on the road to long-term success. As part of the solution, and to address the succession planning needs of America’s agricultural community, Farm Journal introduced the Legacy Project in 2008. The Legacy Project is supported by a philanthropic grant from Pioneer Hi-Bred (a DuPont Business). It provides good information, relevant tools and practical experiences to guide families through generational transition. The goal of the Project is to cultivate multigenerational success in the Ag community.   

The Farm Journal Legacy Project is designed to help families have constructive conversations, define common goals, tackle the difficult issues, use a proven planning process and take action. Your farm, the family and your future depend on the decisions you make and the actions you take. The Legacy Project is far more than talking points. We’re intent on making a difference and improving the dismal results of agriculture’s past. The far-reaching objectives of the Legacy Project include:

• Passing viable family farming operations on to the next generation.
• Promoting agriculture as a profession.
• Becoming the cornerstone of the conversation to protect our nation’s food sovereignty. 

If you struggle with where to begin and who can help, we invite you to access the resources available through the Legacy Project. It should be the next step in reinforcing your succession intentions. Whether just beginning, or looking for a second opinion, the tools, information and experiences are designed to help. 

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