March 27, 2017

Strategy and succession planning for future farm transitions—so much to consider, and so much at stake

By Tim Kerstein, Director of Solutions Development

Succession planning is a topic many business owners fail to consider. Some avoid the topic entirely. And farmers are no different.

Transition of ownership is difficult for any business, but farm transitions are especially complicated. They are emotional.

They can disrupt family harmony. The history and emotion that blurs the line between “family farm” and “business” make the process so much more agonizing for those making long-term plans for a farm. But no matter how long the “transition talk” sits on the back burner, the day will come when transitions need to occur—whether that is transferring the farm from one generation to the next, changing the structure of day-to-day management of the operation, or determining roles for off-farm family members.

Succession plans may be the most important piece of a farm’s strategic plan, yet very few farm operators have documented strategic plans. Farm transition is inevitable and will come whether or not anyone is ready. Recent Entira market research in the corn belt revealed that 25% of farms were expecting a primary operator change in the next five years. That number jumps to 50% when including farms expecting transition in the next 10 years. That is staggering when you think about it. 

It is much easier to avoid uncomfortable conversations than face them, but these tough conversations are necessary to ensure sustainability in one of America’s longest-standing family-owned businesses. It requires stepping into unpleasant territory—facing undesirable topics like death and finances—and it is so easily procrastinated; sometimes until it is too late.

Protecting Farm Legacies Extends Beyond the Family…It’s an Industry Issue

The first thought that comes to mind when talking about succession planning for a family farm is to preserve the family legacy, but there are wider implications as well.

Planning ahead for farm transitions matters to the agricultural industry as a whole. What happens within a farm operation has a ripple effect on all the businesses that serve it. As an ag business, if you are channel facing in any way, these farms’ longevity, operational strength and continuity are critical to your success. More broadly, these transitions have an impact on land prices, as well as the population and concentration of active farmers; and the performance and productivity of farm operations drive the overall farm economy.

Ag companies are taking note of the urgency around long-term planning for farm families, compelling many to open a dialogue with their customers about strategic planning for future transitions.

Entira recently led workshops on behalf of a major cooperative to get farm families talking about the goals for the future, the issues at stake, and how to begin the process of establishing a transition plan. The two-part series led participants through intensive sessions where we coached farm owners and the incoming generation on how to develop an overall farm strategic plan, including a transition plan. We frequently had father and son sitting down together—in many cases for the first time—to talk about the farm beyond the next 1-2 crop years. We provoked dialogue around such topics as, “Who is/are the successor(s) in key farm decision-making areas?” and, “when is that going to happen?” Every session resulted in ah-ha moments, like a farm owner realizing, “I didn’t know you wanted to start learning about the marketing side of the business.”

Why Farm Owners Fail to Plan

These conversations are forced to the back burner for many reasons.

Reason 1: “I’m not ready to give it up.”

Yes, pride and personal identity keep farmers farming as long as they are physically able. But a strong farm economy over the past decade made it even more appealing for aging farmers to stick it out a while longer.

Reason 2: “I’d like to retire, but nobody is ready to take over.”

In a 1960 speech, President John F. Kennedy said a farmer “is the only man in our economy who has to buy everything he buys at retail - sell everything he sells at wholesale - and pay the freight both ways.”

Farming is a very capital intensive, cash-flow oriented business. A young farmer may have the financial resources for his or her own family but not enough for a combine, sprayer, early season purchases, or getting the credit for all the above.

Generational differences are often a factor as well. Maybe Dad is unwilling to sell equipment or land at fair market value because “his dad didn’t cut him any deals,” and to him it is a rite of passage...if that generation has the desire to return to the farm.

Reason 3: “I don’t want anyone to get upset.”

The role of communication should not be underestimated. It is absolutely critical to get everyone (active and non-active family, employees, etc.) on the same page. The farm owner must be clear and open about goals for the operation, and make sure those goals line up with the wishes, intent and readiness of potential successors. The incoming generation should also share their long-term goals with the farm owner as that might impact near-term decision-making before the farm transfer.

Maybe there is a discrepancy between husband and wife, or father and son…whomever the players—and until those cards are on the table, then and only then can farm owners begin to strategically plan for their farm’s future.

How Do I Get Started? And How Do I Not Screw it Up?

The first step is the hardest one for farm families to take because few know where to begin. But in most cases, a simple nudge in the direction of questions to ask, discussions to have, and variables to consider are all it takes to get the ball rolling.

Succession planning needs to be approached strategically; and just as it works with any kind of strategy development, the soundness of the plan comes down to the questions being asked to identify all the right goals, needs, threats and opportunities that the farm will face now and in the future.

Entira can equip ag companies to help customers think through these issues while there is still time to plan. Through carefully crafted, conversation-provoking exercises, we can get farm owners more prepared for the next steps—ultimately saving them time and money by doing their homework upfront so they can hit the ground running when they sit down with their attorney and accountant.

The longevity of farm businesses is impressive given the fact that only one-third of U.S. small businesses make it past the 10-year mark. In some cases, these farm businesses have 100 years of blood, sweat and tears, which deserve a well-thought-out plan that carries forward the traditions and philosophies the owner and other stakeholders wish for. Without a plan, transitions too often are fraught with confusion and conflict, which can have serious consequences and put the family legacy at risk.

If you would like to learn more about how Entira facilitates the communication and thinking that goes into strategic planning and decision making for farm transitions, please contact me at tkerstein@entira.net.