When you are raised in a farm family, the chores, the environment, and even elements of the financial side of the operation almost become intuitive. You develop a rhythm and way of doing things that you adapt as you go along. However, one of the biggest challenges in a farming operation is often passing on the business to the next generation. For many, it’s difficult to even start a conversation about the future of the farm. It’s emotional, and it’s uncomfortable, but the survival of the farm may literally depend on keeping that conversation going.
Gathering outside experience
If the succession plan includes a transition of management responsibility and ownership, one of your first tasks is to define the skills and experience necessary for long-term success.
If the next generation has only worked for Mom and Dad or Uncle Joe, it is crucial to have some time and space for outside experiences to learn from others. These experiences will not only build valuable, practical skills, but also provide a fresh perspective. In the same way that travel gives you a new view on where you’re from, experiences in another operation will help new farmers look with clarity at their own practices.
Understanding the whole operation
While outside experiences are helpful, they may not always be practical. If there is a shortened transition timeframe due to health issues, you probably won’t have the luxury of helping the younger farmer gather different perspectives. In that case, the focus should be on cross-training.
Ideally, the younger farmer should see every aspect of the operation and have meaningful experiences in those areas. On a dairy farm, for example, that may mean spending time in the parlor doing some milking before transitioning to working in the calf barn, and then moving on to focus on growing the crops that feed the herd.
The goal isn’t necessarily to make a person an expert in every aspect of the operation. On larger operations, or where there are multiple individuals as part of the transition plan, it just isn’t reasonable. On smaller operations, the person may already have had these experiences just by growing up on the farm. The idea is to be intentional about building the core, requisite knowledge of the operation. This will give the individual a foundation for making management decisions when the time comes. Later, they be able to fully understand the concerns of the herdsman or nutritionist, and how individual decisions impact other parts of the farm.
Developing business and financial skills
Farming today looks a whole lot different than it did when the previous generation took over the farm. Today, it requires a different level of business and financial acumen. While many in the next generation may have been educated at colleges and tech schools, nothing beats some real-world business experience. Get the person involved in putting together the annual operating budget. If your operation works with a third party consultant, it is a perfect opportunity to start building the relationship between the experienced consultant and the next generation.
Another way to start developing financial acumen is what I’ll call project work. Have the person revisit some old ideas or explore new ones. Are there new revenue streams or some creative opportunities to explore? What would it really cost to expand, and what production results are required for it to work out? Are there some management practices worth implementing to improve employee retention and productivity? How could “big data” be applied to the operation? It’s likely that you have had to wrestle with these questions many times over the years, but maybe the next generation’s perspective will uncover some answers.
Once your successor has done the project work, take the time to mentor that person through all aspects of the analysis. My best performing clients, especially on the dairy side, can look at production reports and quickly tell you what went wrong. I was recently having a conversation with a younger dairyman who missed last year’s financial targets. He had worked up a spreadsheet where he accounted for nearly all of the bottom-line shortfall by focusing on about six factors. He broke down the impact, in terms of dollars, on each of those factors, concisely explained the cause of each variance, and most importantly, had a plan of how to remedy each issue. A farmer who can sit across from their banker with that type of information with a plan in place will have a much easier time ahead of them.
Relationships with professionals
Don’t underestimate the importance of building and transitioning relationships with the farm’s bankers, attorneys, tax and accounting professionals, and consultants. You must approach them with the same level of intentionality as every other part of the plan. The banker may trust Mom and Dad, but does he fully trust the daughter? The feed or herd consultants have a certain level of understanding with the first generation, but do they even know the next generation? The same goes for the tax or accounting professional. These advisors often help devise and build out transition plans, but can also play a vital role in helping build the next generation’s skills. In all of those relationships, there is history and context learned through years of working together. A plan that fails to consider how that history is transferred is setting itself up for a struggle.
How we can help
The transition of a farm operation starts long before the reins are actually handed over. CLA’s agribusiness professionals can help with all aspects of succession. It starts with tough conversations and coming to common goals, but ultimately the plan is only realized through work. Everything discussed here is work, but it’s work worth doing to help equip the next generation for success.