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Successfully transferring management from one generation to the next is a major challenge for many family-owned businesses. Many farm business owners equate a succession plan with tax and estate planning. They focus on strategies to minimize the tax on sale or death and agreements for the purchase and sale of land.
Although these are key issues, they are only a part of a successful succession plan. Many owners neglect to plan for the transfer of key skills and knowledge required to operate and manage their farm. Yet, the successful transfer of this information is critical. The value of your farm business to a potential purchaser is dramatically enhanced when the key systems and processes that make the operation successful have been detailed and documented. You need to be able to clearly demonstrate to the buyer that the farm is capable of running efficiently and profitably without you.
The same argument holds true when management of a farm business is transitioning to the next generation within the family. Deborah Steinhal, a partner with Scion Advisors says, “Maintaining continuity requires an ongoing dialog about how participants will work together as the business and family grow and change. Farm owners need to mentor their children. Succession plans might even include provisions such as paying for a child’s education or requiring they have masters degrees or outside job experience before taking positions with the family farm.”
Why do so many farm owners find this process so difficult? To understand the answer, it helps to view the farm operators as the parents and their farm as the child. When the child was very young, the parents did everything. They worked very hard to support the child; helping them grow and prosper. As the child grew, they became more successful and independent; all under the watchful eyes of the parents.
Every parent eventually faces the challenge of “letting go” although their instinct has always been to stay involved, to instruct, guide and make all the decisions.
The goal of business succession is to enable the farm business to operate and prosper without the day-to-day involvement of the current leader or leaders. To be successful, the owners must let go of their day-to-day involvement in the minute details of operating the farm business. They must identify the next leaders, mentor them, provide detailed and well-documented systems and frameworks in which to operate and then step back. The current farm owners continue to play a critical role of experienced advisors and ‘guardians of the vision’, ensuring the strategic direction and key decisions remain true to the values they themselves established.
Whether the goal is to transfer ownership and management to the next family generation or to maximize the value of your farm business in an arm’s length sale, planning for the effective transition of the farm itself is a key consideration. Often, a qualified consultant who knows your business and the ag industry can be a valuable asset. Above all, transitioning your farm business is a process, not an event – and the time to begin it is never too early.
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