With most farmers or ranchers spending an average of 50 years or more on their farms – where land is both a lifestyle and legacy – it’s a wonder why so many of these businesses (over 80%) fail to plan for the next generation of business and ownership. Look closely, and it’s not such a mystery after all.
Reality check: Numbers don’t lie
- Only 30% of all farms and agribusinesses successfully transition from the first to second generation; of those that do survive, 10% transition to a third, and of the few remaining, less than 4% make it to a fourth generation.
- According to a Farm Journal Media survey, 80% of farmers say they plan to transfer control of their operation to the next generation within 10 years, but fewer than 20% said they were confident they had a good plan in place.
- Concordia University research revealed 81% of family farms have no succession or transition plan. And when asked why, 50% of respondents said it was too soon and 29% said they didn’t have enough time. Another 21% told researchers they didn’t have access to advice or tools and the remaining 13% saw the process too complex or intimidating.
The Reasons are Unreasonable
Poor planning or no planning. Accountability. Insufficient allocation of capital to the process. Lack of financial direction. Not having sensitive, challenging, and family discussions. Confusion over the difference between having an estate plan versus a transition plan. These are often the reasons that we see these business transitions fail.
Additionally, many farmers and ranchers tend to think having a will is enough until they’re “ready” to start the discussion.
Succession planning is not estate planning. Estate planning is the paper and financial part of the farm estate planning, and if done well, these planning techniques are designed to mitigate estate tax and prepare for wealth and asset management.
Succession planning, on the other hand, involves the non-tangible assets of a business – including development of management and leadership skills, honoring and documenting the knowledge of the business founder, and providing conversation and clarity for family members throughout the process. It’s important to note that people are key to transition planning.
Tips for Starting a Transition Plan
- Get help with family matters: If navigating the professional and personal side of family discussions is holding you back, consider a facilitator to moderate the family business succession discussions. A third-party advisor can navigate the personality issues and family history involving multiple generations, multiple families, in-laws, and other key players who have dedicated their lives to the business.
- Get started. The most successful transitions are those that are well planned and proactive – rather than reactive due to a sudden, unexpected need. It’s easier to have these conversations before you are forced to make hard choices after the occurrence of a life-changing event.
- Utilize business professionals to guide the process. Having facilitated discussions to make sure everyone is heard is important. These conversations and related activities are a change-maker in the success of the process. People can feel secure, valued, and understand their own role in the transition.
- Estate planning is not the only piece in a transition plan, but it is a crucial element. Estate tax law has been volatile in the past, and the future of the estate tax environment is extremely uncertain, so it’s best to be prepared. There are also many non-tax benefits to consider: protecting assets, distributing assets, avoiding family conflict, minimizing probate, and ensuring estate liquidity.
- Continuing the conversations is as important as starting them. Creating a cadence of accountability is the difference maker. It’s important to revisit the plan on a quarterly, yearly, or semi-annual basis. Advisors will recognize and communicate if there are changes in circumstances which require a “rethink” on either the personal or financial side of the business.
You Don’t Have to See the Whole Staircase, Just Take the First Step
Call your trusted advisor. Ask them how they can help secure your business’s success, protect your assets, and ensure the business will continue to support the family. You’ll never regret having this conversation.
K·Coe’s Next Gen experts understand what matters most to you. By developing a long-term strategy that is reflective of your business and personal goals, together we will generate, assure, and enrich your legacy. Our experts can help to develop your next gen plan, navigate the transition, and protect the asset base you’ve worked so hard to build. Contact Jim Rein at firstname.lastname@example.org to get started.