The farm is more than a means of making a living. It’s a family business, a way of life — and it’s home. The assets, the skills and the knowledge you’ve accumulated to build this successful operation took decades. When you’ve identified a successor to take the operation to the next generation, succession planning becomes an ongoing but crucial process, where you’re following a timeline that maps out a smooth transfer of knowledge along with assets. Yet, according to a 2020 report from the Federal Reserve Bank of Minneapolis, 22.9% of agricultural borrowers have a formal succession plan in place. If you’re among those who haven’t done so yet, here are some considerations and tasks to begin right away.
1. Plan the transfer of knowledge
Know your blind spots. In any business, smart managers understand they should never create a situation where one person hoards all the knowledge. Sometimes, there’s a very practical self-preservation impulse hiding behind that: If only I can do this, I’ll always be needed. If you find yourself hesitating, start taking steps now to start involving the next generation. Because as a farmer, you know the reality: Tomorrow is never guaranteed. Make sure the operations are set up in a way so someone could stand up and take over the controls. Grab a notebook and dive deep into the question: If I’m gone tomorrow, what could my successor handle and where would they need the most help?
2. Map out the apprenticeship
Your successor is learning on the job. Even if they’re by your side most of the time, it’s smart to take a future-minded view of the operation. What do you see coming in the next decade and beyond? Which skills or subject matter expertise would best prepare your successor for what’s coming? Find out what your successor thinks should be areas of focus. Then consider where and how they would gain these skills. Spending time with these questions and looking ahead of the curve can breathe new life into the business and uncover new opportunities.
3. Implement change gradually
Once you’ve mapped out your successor’s strengths and possible areas of growth, it’s time for the serious work of mapping out a plan and implementing it. Create one-year, five-year and 10-year plans for the operation. Along with changes, map out how your successor will become increasingly involved. Start small, provide time for feedback and learning, and then gradually increase their role.
4. Meet with an attorney
An attorney who specializes in succession planning can take the mystery out of how to transfer assets to the next generation — with less hassle than you think — while minimizing the tax burden.
5. Organize your operation into an LLC
If your farming operation is still a sole proprietorship, consider organizing your venture into an LLC. Doing it now is a sound business decision in the short term and for the long term. In the short term, an LLC immediately protects your personal assets from business liabilities. Long term, an LLC makes it far easier for your successor to pick up and continue the operation when you’re no longer around — otherwise, things can get tangled up in estate court. Talk to an attorney or financial professional, preferably ones who specialize in agriculture and succession planning, to get started.
6. Prepare your family
Check in with other family members, particularly if your successor has siblings or other family members, and communicate your intentions for the operation and why it was decided this way. Admittedly, these discussions can become difficult and emotional. But don’t let that keep you from having them: You’ll want to have these conversations while you’re still around, so they can hear it directly from you.
Start planning today
Creating a formal succession plan that accounts for assets, financials and the transfer of knowledge can seem overwhelming. But putting the work in is worthwhile because when you have a clear plan, plotting out the tasks to accomplish it will come easily.
Minnwest is the local bank where you can forge a strong relationship with an ag banker you trust. As you work through succession planning, we’ll share our perspective to help you protect working capital.
Ready to discuss long-term plans for your operation? Connect with an ag banker that lives in your community today.