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Frequently Asked Questions

various topics related to business planning
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Frequently Asked Questions (FAQ)

Frequently Asked Questions (FAQ)

FAQ: I am a farmer and lately I have been reading a lot about the importance of having a business succession plan. Just how important is it and how do I go about it?

It's only important if you want to be the one to decide what happens with the farm after you are finished with it (yes this will happen at some point in the future). If you don't care, then don't plan.

However, if you do care, then the time is now. This blog will help you to understand some of what you can expect during the succession planning process. Its purpose is to help get you started - it is not a detailed "how to" formula.

The purpose of farm succession planning is to establish a plan for the eventual transfer of the management, ownership and control of the family farm to the next generation.

I very specifically put "eventual" in the definition because many farmers seem to believe that all three aspects have to be transferred at the same time. They want to conduct the transfer but, due to a variety of reasons, some have a difficult time giving up total control (at least right away). Fortunately, they do not have to.

One way of looking at the "big picture" of succession planning is to consider answering four inter-connected questions: what, who, when, and how. Remember, this is a process. You can begin the process by answering each question on your own. You will then be much better prepared when it is time for you to seek professional advice.

What exactly is it that you plan to pass on to the next generation?

You will need to review and assess the farm as a business operation. In addition to the financial statements of the last few years, you will want to estimate the current value of the farm. Farm valuation can certainly be complicated, but, for purposes of succession planning, an estimate of the current value of all the assets less the total debt will give you a good starting point.

A succession plan implies that the farm has been successful. If it has not been successful then you really need to consider whether or not it makes any sense in passing it on to another generation. If the farm has been successful, you (along with the successor) will need to develop a business plan. This is an area where you might benefit from professional advice.

Who do you think would make the best successor?

Sometimes this is an easy question to answer but often it is not. Even if you know who the obvious choice is, you might still worry about the possible effects of such events as divorce, disagreement, poor management etc. You will likely also have concerns about treating all family members "fairly". These are real and legitimate concerns, but most of these types of "problems" can be overcome with careful planning, so don't let them bog you down.

 When do you want the transfer to take place?

This is often the most difficult question to answer for the current owner. Many farmers just aren't ready to let go completely. Because of this, they keep putting the succession plan off, unfortunately sometimes until it is too late. However, there are ways to give up ownership but still maintain control. There are also ways to maintain ownership but have any future increase in the farm's value pass on to the next generation.

How do you want the actual farm transaction to take place?

This is where your advisors can provide you with options that best meet your goals related to the transfer. As I noted before, there are creative ways to accomplish your goals and ensure that all your "nagging concerns" are addressed. You will likely require advice related to accounting, taxes, law and financial matters. Some farmers even hire a facilitator to guide them through the process.

I wish I could tell you that succession planning is easy and straight forward. I wish I could tell you that it won't cost very much. I can't.

I can tell you that starting the process earlier rather than later will help reduce any stress you might be feeling related to planning for the farm's future. I can also tell you that there are various government programs available to help share the costs related to the process.

Just get started!

Frequently Asked Questions
 

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