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Your farm succession plan isn’t complete until it exists in writing

November 18, 2022

Your farm succession plan isn’t complete until it exists in writing

Synopsis
3 Minute Read

The average age of farmers in Canada is increasing. Having a written succession plan becomes more important as you age, to help secure your legacy, protect your farm operation, and reduce conflict.

Recent census data from Statistics Canada (StatsCan) shows that the average age of Canadian farmers is 56 years old, and only 12 percent of these farmers have a written succession plan. The number of farmers that reported having only a verbal succession plan was nearly twice as high, and the number with no plan at all was five-and-a-half times as high.

These statistics are concerning given how important the agriculture sector is to the Canadian economy, let alone the hardworking agriculture families like yours who need continuity and stability in their livelihood. A formal and agreed-upon succession plan, written in detail, is the ideal standard your agriculture businesses should aim for, regardless of size.

What does a written succession plan look like?

The length of your succession plan will depend on how many actors are involved in the transition. When printed, it can all fit into a binder.

Typical elements you will want to include in a succession plan include:

  • A three-year, and five-year business plan
  • A unanimous shareholder agreement
  • Copies of lease or rental agreements
  • Annual financial statements
  • Grooming plans, training, and knowledge transfer

Why don’t more farmers have a written succession plan?

Farmers face various challenges and hesitations about written succession plans — no two operations are the same. Here are some of the most common themes:

Avoiding the “soft” topics

Many farmers prefer to focus on how the business is performing, and tasks that need to be done, rather than think about the human elements and relationships that keep their farm running.

Conversations around succession will often overlap with inheritances, estate planning, and family legacy, all of which can be difficult or awkward subjects to talk about. Some farmers avoid these conversations because they see them as a potential source of conflict.

Ambiguity around retirement

Many farmers never consider themselves as being fully retired. Especially when you live on the farm, the concept of full retirement and separation never feels like it’s in the cards, even if you no longer hold the same ownership stake as you used to. Farmers tend to speak more in terms of “slowing down” their involvement in the business and letting others take on a bigger role.

Assuming verbal confirmation is enough

If you’ve had formal conversations about farm succession with your family and the next generation of owners — even without putting any plans in writing — you’re already in a minority. Many farmers assume that in a tight-knit family, verbal confirmations or agreements are enough to have everyone on the same page.

Commitment of time and resources

When done properly, writing a succession plan requires the services of a business advisor — one who understands your financial realities, goals, and vision for the future. You’ll normally need to have multiple conversations with your family and advisor present, over several months. Many farmers see the process as being too prohibitive or expensive.

What are you risking by not having a written plan?

Most people in agriculture are only one injury or unforeseen life event away from needing to step back from hands-on farming work. A written succession plan is one of your most important tools for managing that level of risk, along with insurance.

Legacy

As a farmer, your legacy and reputation in the community is of paramount importance. While it’s not always comfortable to think about, you must consider what you want your legacy to be after you’re gone, and what you want to leave behind.

A successful agriculture operation takes generations to build, and can be dismantled in a much shorter timeframe. A written succession plan greatly increases the likelihood your farm will grow sustainably and consistently after you step away from the day-to-day operations. The next generation of owners may not run the farm exactly as you did, but if you create a written plan together with them, you get to have your say.

Family harmony

A written succession plan is an opportunity for all stakeholders and family members to be heard. There are no guarantees all parties will get what they want, but a forum to share expectations and wants helps build family unity.

Without writing down the succession plan, you’re forced to rely on people’s recollection of these conversations as you make decisions. If a family member passes away, and no written plan exists, you’re forced to try and recall what they wanted or speak on their behalf. All of these dynamics create tension and conflict that could have been avoided if agreements, processes, and plans are written.

Time

Because farming normally happens in annual cycles, you only have so many opportunities to train and groom the next generation for ownership. It’s not like other businesses where you can give employees hands-on experience at any point with any task. Writing your succession plan early affords you more time to pass on valuable knowledge so the farm continues to prosper.

Getting started

If you’re among the 88 percent of Canadian farmers who don’t yet have a written succession plan, it’s never too late to get started. Speak to your family or other successors about the big-picture items that are important to you and to them. Then, ask your financial advisor or accountant for help creating a plan that fosters a smooth transition of the farm to new owners.

Contact us

To learn more about how MNP can help your organization, contact Trevor MacLean, MBA

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