The agricultural industry is unlike any other, meaning there is a limited group of people who can step into farm management. Yet, according to the Cooperative State Research, Education and Extension Service, up to 70 percent of farmland will have new ownership by the year 2028. Succession planning is a critical step in ensuring the farming operation is still thriving for generations to come. One of the unique characteristics of the agricultural industry is that most are family-owned. In fact, the U.S. Department of Agriculture’s National Agricultural Statistics Services says that 97 percent of all U.S. farms are owned by families. When a family owns the farm, succession planning must take into account business and personal considerations.
Making the Transition
Following are some tips for making the transition to new ownership: • Get an independent financial, operating and marketing appraisal – An independent appraisal for business and analysis will ensure the business assets are accurately and fairly evaluated, determine the sustainability of business operations, and consider market conditions and the future of the industry. • Update agricultural practices – One of the points of contention between the older and younger generations of farmers is agricultural practices. If the farm owner wants younger people to be interested in keeping the farm going in the future, they will need to be engaged now. Each generation should listen to the other and work to find ways to blend traditional farming practices with new approaches that often involve technology. • Determine a retirement date – It is difficult for the younger people who plan on taking over farm ownership one day to not know when that day will come. You should set a retirement date to give successors a target for making sure they are prepared to assume ownership. At the same time, you can plan financially for your retirement years. • Formalize the succession plan – Without a written succession plan, transfer of ownership is determined by state law. The state will also distribute assets. These are decisions the family should be making. The succession plan includes an asset distribution and ownership transfer plan, creating a path for a smooth transition should you retire or die. Any and all details can be included to eliminate any doubts as to who has management responsibilities and controls assets. Share the final plan with anyone who is involved in the succession plan. • Develop the named successors to become owners – Once the successors are determined, it is important to train them to become owners. Decision-making responsibilities can be slowly transferred over time in preparation for your retirement. It is better to let the new generation of owners make decisions while you are around to guide them. Train the successors in every aspect of the business, including caring for livestock or agricultural products, marketing and selling products, financial planning, record keeping, raising capital for major equipment purchases, insurance, government regulations and reporting requirements, workforce management, and risk management.
Deciding on Action
The first step in succession planning for an agricultural business is deciding to do it in the first place. Gather the family around the table and begin discussing retirement plans, ownership transfer, skills requirements, and so on. Out of the conversation will come a clearer picture of the training needs and the level of interest of particular people in taking over the business. Succession planning is a complex process, so many people turn to consultants and advisors for direction. OGS Capital has experienced consultants who can assist with all aspects of succession planning, including financial analysis from business plan and strategic planning for business. Simply complete the OGS Capital online contact form as a first step in protecting the future of your business.
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