Handing off the family farm or ranch from one generation to the next is a long-standing American tradition, and a source of pride for those who want to continue their family’s heritage of making a living off the land.
On the surface, the process is simple enough. As one generation closes in on their retirement years, the younger generation prepares to take over the day-to-day responsibilities. Eventually, the land and equipment pass down and the operation continues, hopefully for many more decades.
The reality is that succession is not just a complicated business and legal process, but also a deeply personal and emotional journey for everyone involved.
Succession is on a downward trend.
Family farms still make up the bulk of America’s agricultural operations, but they’re disappearing at an alarming rate.
More and more young folks are moving to towns and cities, far away from the fields. And who can blame them? If the family operation is in a shaky financial situation and revenues are drying up, what are the incentives to take over and inherit a pile of headaches and heartburn?
There are a lot of reasons for farm and ranch struggles, including declining soil health, rising costs for equipment and chemical treatments, and diminishing quality of life. These elements are all interdependent, and when out of alignment, contribute to lower rates of succession.
Where things are most difficult.
Family operations often do not pass on until the forced retirement or death of the current owner/operator. When this happens, it can leave raw emotions, legal and financial nightmares, and, too often, causes rifts between family members.
Farmers and ranchers are well known for their tough, independent nature. It’s a great and admirable quality, especially in a career that requires a wide variety of skills and know-how. After all, where would this country be without that classic Midwestern get ‘er done attitude.
Discussing crops, cattle and the weather is easy. That’s everyday life, often talked about over coffee at the nearest truck stop or corner cafe. But ask about the uncomfortable family meetings needed for succession planning, and many producers clam up.
It's hard to let go of decades of financial investment, not to mention the sweat and grit. It’s a lifestyle and an identity. The thought of handing over the reins or selling, even to family, leaves a hollow feeling in the gut. And so the succession can gets kicked further and further down the road. Until it’s too late.
How do we start reversing the trend?
So how can we get back on track and increase the number of young folks taking over the family operation and running it profitably? Conversations. Early and often.
Communicate your vision:
What do you expect the operation to look like in five or ten years, and beyond? Do you see changes in the crops or livestock? Is there a plan to add new business lines, such as guided hunting, events, and other things to diversify the business and strengthen economic resiliency?
Whatever your vision is, try to convey it to your family as clearly as possible. Until everyone understands where the operation is and where you see it going, they’ll be left in the dark.
It's OK to piecemeal the family discussions:
If the thought of one big discussion is overwhelming, break it into segments. Maybe you talk about ownership first and save business diversification for another day. Taking things one small step at a time is fine so long as those small steps keep the plans moving forward.
Also, having these meetings in a separate space can be helpful. Do things quickly turn edgy when you talk over the dinner table? Move the conversation somewhere more neutral, like a consultant's office.
With the future owner/operator:
Passing on your hard-earned wisdom and skills can’t be saved for the last minute. Plan to spend several years overseeing and mentoring while you slowly hand over the reins.
Like family discussions, mentoring and loosening control may be easier if done in small bits and pieces over time. Your operation will fare much better if you take time to educate and prepare future generations.
With professionals:
Likewise, when it comes to consulting with lawyers and financial experts, you shouldn’t procrastinate. And don’t expect that you can do a handful of meetings and be done. Depending on the complexity of your operation and your plan, you might be having annual, or even monthly, conversations with consultants for several years.
Checking all the legal and financial boxes is important to make sure that land and other assets are documented and protected.
Before, not after.
The most important part of a successful succession plan is communication. And you can begin that today. It can be as simple as making an appointment with a financial planner or attorney. Or a short chat with a family member about your plans beyond the next season.
Every phone call, every heartfelt conversation, is a gift to your family, and to the future of your operation.
How Starion Bank can help.
If you have questions about success and aren’t sure where to start, chat with a Starion agribusiness banker. Through our Legacy Agriculture Program, we’ve developed partnerships with organizations that specialize in soil, grazing, grants, and of course, succession and estate planning.
We’re happy to connect you with the experts who can help you understand everything from the smallest first steps to the long-term view, and everything in between.
Set up an appointment with one of these Starion Bank Agribusiness Bankers today.
