Begin Succession Planning Now
In both Oklahoma and Texas, there are almost eight times as many farmers over 65 years of age than there are farmers under 35 years of age. It is estimated that up to 400 million acres of U.S. farmland will change hands in the next 20 years. Who will farm these acres? Who will farm or ranch on your acres?
We usually think of farms and ranches as family businesses. A family business is one in which more than one family member takes on management or active ownership responsibilities. The essence of a family business is that blood, work and business ownership are held in common. About 30 percent of family businesses make it to the second generation. Only about 15 percent survive to the third generation. About one in 20, or 5 percent, can claim that they are fourth-generation family businesses. (Note: Many farm and ranch families own and operate land that has been in their family for multiple generations. Transfer of land does not necessarily equate to succession of a business operation.)
The concept of a multi-generational family farm or ranch holds appeal for many, but the reality is that it may be more difficult to enable succeeding generations in the business than it was to create the original business. If you truly wish for someone close to you to carry on with your farm or ranch operation, then you need to begin succession planning. Not soon, now! The literature is consistent in pointing out that the succession planning process can be accomplished over a period of five to 15 or 20 years. It may be later than you think!
Succession planning is the ongoing process of ensuring the continuation of the family business. It is not retirement planning for the current operators, but their retirement plans are important to successful succession planning. Nor is succession planning merely estate planning with the objective being tax minimization. But, an effective estate plan is an important component of comprehensive succession planning. The succession plan guides the transfer of the family business the ownership, management and labor to the next generation. Preserving family harmony and the continued success of the business are the essential objectives of succession planning.
- Succession planning is a process that requires time (five to 15 years) and effort by many. It should begin many years before the current operator plans to retire.
- Start now. The earlier in your life and the lives of your successors the process begins, the greater the likelihood of achieving your goal.
- Critically assess the finances of your business. Is your business profitable? Is net income of the farm or ranch increasing enough each year to cover inflation in living costs? Will continuing your operation be a boon or a burden to your successors?
- Schedule regular, formalized family meetings. Encourage everyone to learn as much as possible about succession planning.
- Begin planning for your retirement.
- Outline how and when labor and management will be transferred. These plans should include a "successor development plan."
- Ownership transfer includes, but is not necessarily limited to, a legal, up-to-date will.
- Develop a contingency plan, probably at the beginning of the process. What if something catastrophic occurs before succession planning is completed? How will you handle divorce, illness, injury, business failure or death? The ultimate contingency plan is the will.
- Set a timetable for completion of activities in the process. Measure progress against the timetable and adjust as needed.
The idea of a multi-generational family farm or ranch business is appealing; the reality is that farm business management is difficult in and of itself. Planning for and successfully transferring the total business, not just the land, to succeeding generations is time consuming and challenging. If you undertake the task, stick with it the results will transcend time!
Succession Planning is Critical, Aug., 2005
Thought for the month: Every age and generation must be as free to act for itself in all cases as the ages and generations which preceded it. The vanity and presumption of governing beyond the grave is the most ridiculous and insolent of all tyrannies. Thomas Paine, The Rights of Man (1791)