If you want to pass on the family farm to the next generation or inherit your family farm, it does not happen by chance. It takes planning.
Farm Credit, with PA Farm Link, hosted a recent webinar on the topic of farm succession planning, moderated by Darlene Livingston, Director of PA Farm Link. She is a fourth generation farming partner at Mahoning Creek Farm. Brenda O’Brien, New York Farm Net Family Consultant, also spoke at the meeting.
O’Brien said that succession planning is “the ongoing process of a business that involves the transfer of knowledge, skills, workforce management, control and ownership from owner to the other. In a family business, it’s usually between generations.
Although the transfer is usually from parent to child, it can also include nieces and nephews and/or grandchildren. O’Brien’s family farm has just passed into the third generation, a not-so-common occurrence. She said that although 90% of all businesses in the United States are family owned, only 30% survive the transition from first to second generation. And, only 13% of family businesses stay in the family for more than 60 years.
“We have a client we work with here in New York that dates back to the 1820s – talk about a lot of generations and keeping a business in the family,” she said.
Succession planning is difficult to discuss for any business owner, but can be more emotional when it comes to a family business.
“When you’re dealing with a business that’s not family owned, you can get a board together and it’s all about money and finances,” O’Brien said. “The emotion is not there and the perspective is different. But that doesn’t mean it’s impossible. »
Ask the tough questions
An important factor to consider is whether the business should be passed on.
“A lot of people don’t think the business isn’t viable,” O’Brien said. “It may not have been viable from the start. The farm hasn’t been a viable income for a long time, but there’s off-farm income from a spouse and they’ve kept the business going because it’s It’s a way of life and they love it. And there’s nothing wrong with that, but transferring it to the next generation might not be possible.
It may be necessary to reorganize the business with the participation of the younger generation. However, some people in the older generation are not willing to allow this level of involvement.
“When we don’t let go of control, the younger generation isn’t ready to take the reins and run the business,” O’Brien said.
Sometimes the younger generation does not want to take over the business.
O’Brien said best practices for a successful transition include: starting the conversation early; make the business plan viable; ensure that the younger generation has off-farm experience and/or education; and work on the transfer of management. This includes intergenerational transparency regarding finances and operating procedures.
“When we start a business, we all have start-up plans, but we don’t plan to exit,” she said. “Also have a plan to leave your business.”
She encourages farm families to send their young people to work on other farms and pursue any agricultural training they want or need, as it makes them well-rounded and better able to solve problems on the family farm. .
“Some of the best transitions are when there’s open communication starting in adolescence,” O’Brien said. “You will work off the farm for so many years and come back. You will get this property; you will not get this property. So there are no questions.
It encourages the involvement of consultants and professionals such as accountants, lawyers and estate planners to ensure a peaceful and legally valid transfer.
“When we sit down at the table, family members say things they never would have said if we weren’t there,” O’Brien said. “It takes the pressure off. It helps to involve other people in the process.
The worst thing to do is to do nothing, because “crisis planning” often results in the sale of the farm and/or clashes between heirs.
“You don’t want to wait until someone has a heart attack or a stroke to sit down and make those decisions,” O’Brien said.
She said that it takes at least 10 years for the succession because the older generation allows the younger generation to become more and more involved in the farm.
It’s also essential to make contingency plans in case something happens to the farm owner and the next generation isn’t quite ready to respond. All this should be written in the plan.
“It’s not something a lot of people think about,” O’Brien said.
Deborah Jeanne Sergeant is a freelance writer from central New York.