“Before you take root, you must plant a seed,” said Nathan Katzer, business development manager for the Iowa Farm Bureau Federation, as he addressed a crowd of family farmers including my husband and me. What an appropriate send-off to wrap up the series of three Take Root seminars, designed to help families start the conversation to transition their farms to the next generation!
History shows us that only 10% of family farm businesses successfully transition to the third generation. In addition to transferring financial wealth, farm families strive to pass on their emotional wealth: values, life lessons, talents and experiences. Nearly every young person, who grew up on a farm, knows the values of hard work, helping neighbors and striving to care for the land we farm. So why do farms still fail to transition to the next generation for so many families
Lack of communication and not knowing where to begin are the two most common reasons a farm transition fails to transition. No wonder session one of Take Root was titled, “Strengthen Your Family Farm Legacy.” This presentation challenged each of us to really define what it was we were passing on. It provided strategies to help work through emotional obstacles together as a family and ideas on how to answer the tough questions like how to value sweat equity, determine fair versus equal among heirs and transition management early to allow for proper training.
In session two, the focus was the importance of taking time to work “on” the business instead of just “in” the business. We dove deeper into how to transfer responsibilities and build a farm business plan that includes business successors. We discussed ways to build, grow, diversify and specialize our operations all while preparing the operation for the next step.
The final session of the Take Root series featured a panel of experts prepared to answer the tough questions. This panel was made up of professionals in business planning, ag lenders, lawyers and estate planners. We had the opportunity to get some of our own questions answered while discussing financial planning and analysis and employee compensation.
While no succession plan will be identical to another, after going through this workshop series, the process as a whole can be summarized in 10 main steps:
- Set goals, identify common succession objectives with all active family members.
- Prioritize these goals and agree on a timeline for completing your succession plan.
- Collect qualitative and quantitative information including: family relationships, business structure, financial information and estate planning documents.
- Complete a cash flow and financial analysis for each family member.
- Compile all information into a preliminary plan.
- Seek outside advisors to evaluate the collected information and provide recommendations on ownership transition, leadership development, estate planning and financial security.
- Seek input from all active family members concerning the preliminary plan and outside recommendations.
- Revise the preliminary plan to include agreed upon recommendations and supporting explanations for each section.
- Implement your plan by creating the necessary legal support documents, adopting the financial tools and accounting processes needed to accomplish your goals, and beginning the necessary leadership development for the succeeding generation.
- Review this plan with all active family members on a yearly basis.
Involvement in the Take Root series was a great first step to helping my family progress through the legacy planning process. One common theme I did take away from the workshop is that families can never start planning soon enough, but they can start too late.
Communication is key. Have you started the conversation with your farm family? Your future farm legacy depends on it!