More than 120,000 Canadian farmers will turn 65 in the next decade, forcing some of the $50 billion in farm assets to change hands, according to a study by the George Morris Centre and the Royal Bank.
Yet only two to four percent of farmers have a written farm succession plan.
With 70 percent of farms expected to transfer from parent to child in the next 15 years, it is time to discuss the issues, said James Laws of the Canadian Farm Business Management Council. He encourages farmers to start thinking strategically to ensure a higher success rate.
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“That’s what’s behind the push,” he said.
Farms are more likely than other businesses to be transferred within the family, but a study by John Fast of the University of Waterloo found that less than a third of American family businesses have successful transfers. Ninety percent fail on “soft issues.”
Soft issues are the human and emotional ones, said John Anderson, the business council’s senior project manager.
By contrast, hard issues are much simpler to address, he said. The lawyer can transfer the capital, the accountant can file taxes and the bank can arrange financing. Profitability, viability and business performance can be measured.
Farm businesses are unique in that family, business and ownership-capital investment often overlap, making it hard to separate family from business issues. That can lead to differences in values, stress, poor communication and opposing expectations.
“Failure to plan is a potential to fail on three fronts – the family, the business and the ownership capital,” said Anderson. “Failure to have a succession plan is a complete lack of responsibility as the steward of the business.”
Lack of a plan means no insight into how each family member sees the successful transfer of labour, management and capital, he said. It can also leave a family split with emotions, can place a business in a non-viable, non-profitable position and can lead to unnecessary loss of capital through taxes, service charges and other fees.
In succession planning, Laws said families must consider what is fair versus equitable and they must plan early.
Include the younger generation in planning sessions and farm meetings and allow them to build up equity and added responsibilities, he said.
A conference on succession planning in Guelph, Ont., in 1999 concluded a lot of uncertainty and confusion exists about where to begin.
The conference determined that succession planning must be viewed as a process, not a single act, and requires a team approach, specialized support services and a plan of action.
The early stages consist of assessment and analysis, said Terry Betker of the Meyers Norris Penny accounting firm. This stage includes taking a hard look at farm viability and the family and business goals and objectives.
The stage next moves into defining “the road map,” planning and developing a farm succession plan and creating structures to make that happen. It could lead to the creation of shares, a company and business partnerships. It looks at defining roles in the business, studying tax issues, reviewing investments and non-farm assets and examining anticipated retirement incomes.
The final stages involve implementing the plan, and getting expert help regarding corporate structures and tax plans.
