farmgate: Will Your Farm Be Operating As A Family Business After You Are Gone?
Charles Darwin taught us the fittest will survive, whether it is lions, or barn swallows, or humans. And that implies businesses managed by humans will survive if they are fit and generational change is well-planned. While sometimes it is tough to plan from one day to the next, managing those daily risks is much easier if a plan is in place to do just that. We make year to year cropping plans; why not make generation to generation farm business plans?
That is the rhetorical question David Marrison wants you to ask yourself in his capacity as an Agriculture and Natural Resources Educator with Ohio State University. The complexities of the market and the vagaries of the environment require planning, and Marrison says, “It is essential that farm managers take time to adequately plan for all facets of their business.” Family history enters into the picture at an early stage in the planning, along with an abundance of institutional knowledge. “While these values and goals oftentimes remain unspoken, they have a large impact on how family members treat each other, employees and make business decisions.”
Marrison offers help and hope for farm families engaged in transitional planning. It all begins with individual assessments to determine who is best at bookkeeping and who is best at building fences, as well as identification of goals for oneself, family, and farm. Next comes an analysis of the farm business which includes profitability, business structure, and external influences such as governmental, economic, environmental and technological. And Marrison says a mission statement is important, “This statement aligns what the business says it does, what it actually does and what others believe it is about.”
Once the business is understood by all involved, and those involved understand the business and the role they play, there is a need to build five planning areas, which Marrison likens to spokes on a wheel that are equally important, but must carry their own share of the load.
1) Business Plan
A business plan is much more than choosing corn hybrids, because it demands plans for operations, financial, marketing, personnel, and risk management elements of the business. Business planning examines the Strengths, Weaknesses, Opportunities and Threats in each of these areas. The outcome is a roadmap to where the farm is going and how it is going to get there.
2) Retirement Plan
Today’s social structure in agriculture involves older farmers who can’t retire and younger farmers with no where to farm. A retirement plan is designed to prevent that by requiring the participants to answer 2 questions; how much money does each family member need for retirement and what will the farm’s obligation be to retirees?
3) Transition Plan
Transition planning helps the family analyze their current situation, examine the future, and then develop a plan to transfer the business to the next generation. This involves decisions on who will make certain operational and management decisions. It also addresses issues with non-farm heirs and how they will be financially treated.
4) Estate Plan
With the help of legal and financial counsel, questions need to be answered about distribution of the farm’s assets from one generation to the next. There are many tax and legal complications that can occur and those should be resolved at the outset.
5) Investment Plan
While most of the farm assets are in land and equipment, some liquid assets may be invested in other equities or insurance. They may have been accumulated to pay for expected expenses in the future, but decisions will need to be made on financial performance, risk tolerance, and tax liability issues.
Summary:
Many businesses today fail because of inadequate planning. Farm operations, usually with an abundance of assets, can become successful over the course of many generations with proper planning. By close examination of the business, retirement plans, transitional issues, estate complexities and investment policies, the principals in a farm operation can develop a whole farm transition plan that will ensure the life of the operation for generations to come.
Posted by Stu Ellis on July 25, 2007 12:20 AM to farmgate