In a perfect world, transition planning for management and ownership is built into the long-term planning of a farm.
However, most farms approach it like a task; a single event or point in time that needs attention. While this approach can work, it can be improved, and doing so will likely provide long-term benefits.
I’ve observed that awareness is increasing about the importance of transition planning. This seems to track along with the growing size and complexity of modern commodity agriculture. With larger farms come larger management teams with increasingly specific role division. This is a good thing. But transitioning a more complex management structure requires more work and more planning.
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Approaching transition management as a singular event has downsides. The amount of work involved, compressed into a short time, can feel daunting. This is a major reason why many farm families procrastinate.
Pressing through a long list of tasks can lead to less-than-desired outcomes, poor plan quality or omission of important pieces. It can also lead to disagreement and conflict, often because one or more of the family members want transition planning to happen sooner rather than later.
On the other hand, having elements built into the routine annual planning of a farm is a better approach with additional benefits. Developing plans to transition management requires that roles and responsibilities are assigned, and on a timeline created for handing them to the next generation.
If this happens well ahead of time, the successor can grow into their new roles at their own pace, learn from their predecessor’s experiences and knowledge and have time to get additional training as required. When more than one family member is coming into the business, clarity on roles between individuals helps smooth the sometimes rough road to transition.
Further, the individuals may not join the operation at the same time so having plans developed as part of ongoing business management adds clarity.
On the topic of finances, you will spend time valuing assets, speaking to tax planners and perhaps changing legal and corporate structures to benefit the efficient transfer of assets.
What could be gained by knowing this in advance? There would certainly be costs incurred. Proactive transition planning helps avoid unnecessary or unproductive meetings with professionals as things progress. There will be more time to carefully manage liquidity without incurring expenses related to advisers and consultants in a short period. Being able to spread those costs, both time and money, over a longer time will ease pressures on cash flow and time management.
Another common consideration is the possibility of unexpected events. These can be in the form of opportunities that arise or in the form of a harsh reality, like health problems that could interfere with smooth transition of management and ownership.
Tomorrow is not assured for any of us. Tragedy can strike at any moment, and it is always an inopportune time. I have worked with farms forced into action due to financial pressures or looming health issues of the senior generation. The added stress on an already large undertaking was not easy for them to handle.
I have also worked with several farms that had some elements of transition mapped out, and when the unexpected did occur, they were better equipped to deal with it efficiently and effectively and with less stress on the family and business.
There is no better time than now to start building management practices into your farm’s regular management functions. This will significantly ease the workload of developing a transition plan. You can anticipate better outcomes with less disagreement and conflict.
When the time comes to put the finishing touches on the specific components, you will find a lot of them are there, ready to go.
Gavin Betker is a farm management consultant with Backswath Management Inc. He can be reached at 204-995-4978 or gavin.betker@backswath.com.
