Preparing to transfer the assets and management of your farm business to the next generation is a long-term process and one that requires a significant amount of time and energy. It is not a process that happens in a day, week, or month, but rather is a multi-year process.
Along the way, there are a number of questions family members need to address as they begin the process. Let’s take a look at a few of the important questions to consider.
1. What does the family want to have happen to the farm?
Do you want to pass along an ongoing business or a group of assets?
There are two ways to look at this question. One part assumes the next generation will continue the farm, while the other looks at the assets as an easy way to make money.
Answering this question may be difficult because it involves dreams, emotions, and desires. Because of the long-term implications in decisions that are made, all family members should be involved in answering this question.
Developing a written mission statement is an excellent exercise to help answer this question. All family members must be involved and provide input. You may find that the goals of everyone are similar, but you might also learn that the two generations want to move in completely opposite directions.
Conducting a Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis of the business is another useful exercise. This can help family members analyze the present situation and use the information to make better informed decisions.
2. Is there a future for the farm business?
Before determining whether there is a future, it’s important to first determine whether the next generation wants the business.
Assuming the next generation wants to continue the farm, the next step is analyzing whether the business is profitable enough (or has the potential) to support multiple family members.
The FINPACK computerized software program can help and is available by contacting your local OSU Extension office.
3. How is the next generation of managers being developed?
One of the hardest things for many to do is to give up management control. Management consultant and author Peter Drucker wrote, “The final test of greatness in a CEO is how well he chooses a successor and whether he can step aside and let the successor run the company.”
In a perfect world, management training would begin at birth and continue to be a life-long process. Allowing the next generation to assume responsibilities and make decisions over an extended period allows both generations to learn and grow.
4. How can each generation communicate their needs, desires, and aspirations?
More two-generation businesses fail because of poor family relations and communications. One good way to improve communication is to hold regular family business meetings. Some families meet weekly, while others meet once every few months. These are an excellent tool for doing planning and gathering input from all family members about their desires and goals.
Some families will invite outside experts (veterinarian, nutritionist, accountant, and/or Extension educator) to assist with leading discussions and providing input.
5. What plans are being made for unexpected occurrences?
There are a number of occurrences that may occur that disrupt the farm and potentially the transfer process: divorce, disability, death, or the need to go into a nursing home. How will you address these situations?
6. What retirement plans are being made?
For some, retirement may seem a long way off, but the sooner you start planning, the better off you will be once it’s time to retire.
Think about your sources of retirement income. Will your income be dependent upon the farm or do you have off-farm investments? When do you wish to retire? Once you’ve decided when you would like to retire, you can begin determining how much money you will need in retirement.
Work with an accountant or investment adviser to assist in this process.
7. Over what period of time will the transition take place?
While many families think the transition will “just happen” by some magical means, it’s not that easy.
Ideally, the transition should occur over several years. However, there are those unexpected situations that arise and plans need to be made for such events.
8. What is the best way to transfer assets?
As mentioned earlier, the transfer process should start at an early age with the next generation being given responsibility and authority over time. It’s recommended that assets be transferred gradually to the next generation.
The transfer of breeding livestock is often the first category transferred, followed by crop inventories and machinery and equipment, and finally the transfer of land and buildings.
If you need help getting the process started, contact your local OSU Extension office. It has a number of resources available to assist you with the transfer of your farm business to the next generation.
(This article was written with materials developed and adapted by the Ohio Ag Manager Team.)
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