Preparing for transition
Family Farm Transfer – A Common-Sense Retirement Lesson
I regularly work in ownership and management structure changes of farms and related businesses. The work often involves discussions to address succession or changes in business structure. With today’s difficult farm economics, it’s challenging to help clients bring in new owners, buy out owners, find investors, and discover opportunities to start joint ventures and partnerships. Cash isn’t raining from the sky, so we have to be creative and open-minded. In an effort to be efficient when I work with a new client to assist them with one of these transactions I have learned to emphasis a few key items.
First of all, we begin with the end in mind. We gather the key players and have an honest conversation to make sure we understand the goal. Participants need to agree on what the end product looks like and answer key questions. Who will be involved at the end of the process? What are the needs versus wants? For example, mom and dad want to retire, and they need $10,000 a month after taxes to service debt and for living expenses. Is that reasonable? How did they determine that number? Can the operation, as it is currently structured, provide that kind of cash flow? If it can’t, we need to adjust the goal.
Once we agree on the goal, we need to write it down. In this case, our goal is to have mom and dad receive $10,000 a month for 10 years by transferring ownership to the three sons who will share ownership equally and get paid for their skills based on the value that they bring to the operation.
At every following meeting we need to go around the table with family or those connected to the operation and repeat the goal. Everyone, including the professionals helping facilitate the process, must affirm the goal. Based on where we are in the process, is it still the correct goal? If not, let’s open up the conversation and decide how we will adjust the goal. Once we have confirmed the goal again, we can proceed.
I have been in too many transactions where we start the process with a goal, but somewhere in the process the goal gets changed and not everyone is made aware of the change. This leads to conflict, confusion, and expense.
Set realistic goals
Setting realistic goals is the next step. The farm or business will only provide a certain amount of cash flow unless you change its structure. If it can’t generate the needed cash flow, can we change the structure or the business to get the cash flow we need? Can you sell some assets to raise cash or reduce debt? Sometimes these are hard questions for a family to realistically address. Your advisor’s role is to ask the tough questions, provide feedback on ideas, and help structure the deal to minimize taxes and help provide the best outcome.
Reiterate goals and identify responsibilities
At the end of each meeting, confirm nothing has changed the goal and recap any decisions made. What are the action items? Who is responsible? When will they complete the task? Schedule the next meeting to keep things moving.
These seem like common sense items, but in the middle of the process it’s easy to get lost and wander into either unrelated areas or secondary concerns. Building the foundation and identifying next steps will help you stay on task and on schedule.
How we can help
Making big decisions about the succession of your business can be both emotional and stressful. CLA’s agribusiness professionals have a deep understanding of what it takes to develop a thorough transition plan that takes into consideration your unique business and how it is positioned in your industry.
Our professionals understand your needs, including how to sustain the business, treat all children equitably, and possibly provide for a charitable legacy. We’ve helped many families through the family farm transfer process, and can offer experienced transaction support. We’ll help provide the resources you need to implement a practical plan designed specifically for your operation so you prepare for opportunities in your future.