Contents
Last updated: Apr. 27, 2022
Part 4: Transitions should not occur over night
Most transition plans last multiple years and often require substantial amounts of planning, conversations, thinking, restructuring and focus. Often the transition begins long before it truly begins with informal conversations in the barn or on a drive into town. Other times the transition may be delayed for years due to procrastination from the outgoing generation of farmers. Either way, it’s never done in a rush.
Many farm advisors encourage families to stretch out the process over a number of years. While it may be possible to create a full transition within six to 12 months, it’s often not seen as a prudent course of action. Many processes must be satisfied, including tax and financial considerations, estate questions and operational reorganizations with the incoming ownership. Often the incoming generation needs time to both learn and be heard by the outgoing ownership group.
The incoming generation must be engaged on transition planning and the idea of farm ownership or else they may more into peripheral industries which do not necessarily involve the family farm. With Canadian agriculture growing into so many new areas such as ag tech, value-added, marketing and more, there are reasons why a young person could take their talents elsewhere and still feel involved in agriculture. By bringing in the younger generation sooner, it takes pressure off the older generation mentally, as well as physically. Agriculture is a demanding profession and it takes a toll on a person’s body. Left alone long enough, the older generation may unintentionally alienate the younger generation to the point that they simply walk away, seeing no future at the farm.
Benefits to multi-year plans
The key to any good succession plan is preparation. It’s about readying both generations. The younger is assuming management roles while the older are relinquishing those same roles; it’s a learning process for everyone and it takes time to succeed. The outgoing generation is learning to move away from a lifetime of 60-plus hour work weeks to while the incoming is preparing to ratchet up their time commitment like never before. This is why gradual changes for both cohorts are important. A transition is a lot of upheaval, even if done well, so there is no point to rush if unwarranted.
Another benefit of multi-year transition is that by transitioning sections of ownership over the years it gives younger farmers a chance to really understand the intricacies of different roles at the farming operation. That period of testing often gives the incoming farmer a strong indication as to whether this is an area of the farm they are naturally skilled or gifted in or if this may be a position they would look to hire out or recruit help with.
Creating a multi-year plan
Although any plan is subject to change, it is still important to lay the foundation of a plan and begin to execute on it as best you can once it is agreed upon by all parties involved.
That begins first and foremost though with a vision of what you want the future to look like. The incoming generation commonly has ideas on how to either improve, diversify or change one or more aspects of the current farm operation. This is both normal and expected, and multi-year plans should be put in place to support these hopefully viable ideas and see them unfold.
To write down objectives and the strategies to match is a great way to present ideas with clarity and build out specific action plans around them, as well.
Often, roles and responsibilities are carved out during this process that individual family members take on themselves. One person may be in charge of scheduling and running meetings, while another may be tasked with recording all the minutes and action items. Often, though not always, this is done by someone in the younger generation. It shows an eagerness and a willingness to participate in an active way. Sometimes families utilize third-party facilitators for these kinds of parts of the transition process, but many families do prefer to keep some responsibility in-house.
Often it can be helpful if both the incoming and outgoing generation create roadmaps for the farm and what it may look like in three to five years’ time. When completed, a comparative analysis can be done. Find out where there are viable and positive overlaps and focus on those. Areas where there is a missed connection does not mean they should be ignored, but rather discussed and see where they may fit in the future if both sides are far apart.
Take it seriously
Often times, there is a tendency to treat the process as a casual affair since it’s primarily involving family. However, transition plans often involve millions in land, equipment, animal and other assets. By bringing a business tone to this process helps everyone focus and engage in a way that is different than a simple kitchen meeting. If a person was buying a business from a stranger, they would bring a professionalism to the process. This is different because it’s often family, but there is still a business that is being transferred. Showing the respect to the older generation over a set amount of years through professionalism and a willingness to listen and learn is key. It’s the longest job interview an incoming farmer will have, but it’s also the most important.
Write it down
When you have a plan in place, it’s paramount everyone agrees to it and that it’s later written down. Include all details of what each year during the process will look like, while allowing wiggle room for unforeseen changes, equity stakes, roles, responsibilities and overall business structure.
Without these details in place, confusion and misunderstandings can easily creep into the family. This is a critical way to keep everyone’s expectations in line with what is happening throughout the years of the transition.
Click here to read Part 3: Diversified Operations.
Download the full guide to Transition Planning for Farmers here:
About FBC
Developing a succession plan is critical for increasing the value of the business you’ve worked so hard to build. It will also help minimize risk and help provide you with financial security.
FBC has 70 years of experience helping farmers, small business owners and tradespeople develop unique succession plans that help then successfully exit their business on their own terms.
Since 1952, we have worked exclusively with small business owners, farm operators, entrepreneurs, and independent contractors. Over the years, we have helped tens of thousands of customers from coast-to-coast, with customized tax services, including succession planning, financial and estate planning, business planning, bookkeeping, payroll, and tax preparation and optimization.
We understand that no two people have the same accounting and tax preparation needs. Take 15 minutes with us, let’s get to know each other. Book your free consultation online or call us at 1-800-265-1002:
