Many farm families are faced with the prospect that none of the children are interested in farming. They can be interested in the farm, but not in farming.
In the past, the common practice when a family had no successor was to sell the farm. While this is still an option and a reality, other options are also being considered.
Succession planning with an inter-generational transfer of ownership and management is really a form of business continuity planning. What would be the purpose of working through a business continuity planning process if there were no farming children? The answer is one of the topics that differs today from typical succession planning discussions in the past.
There are a couple of reasons why a farm family may want to explore ways to have the farm business continue after the current generation officially retires.
One reason would be when the non-farming children want to keep ownership of the farm as a going concern as opposed to selling off the assets or renting them.
The recent turmoil in the money markets have caused some people, including non-farming children, to rethink investment strategies.
Many non-farming children have investments in registered pension plans and registered retirement savings plans. They ask themselves, “why would I want to sell off farm assets and invest yet more money into what could be risky investments, with only modest returns?” They may feel it’s better to maintain an investment in a hard and usually appreciating asset, such as land or shares in a farm business.
For an increasing number of these non-farming children, with the farm business being quite profitable, there is a good return from continuing to operate the business as opposed to renting.
This would require arm’s length management that is usually a new arrangement and requires careful planning.
Another reason is the desire to keep the farm in the family as an operating unit in case the grandchildren might want to farm at some point. With farms becoming larger and capital investment increasing, the likelihood is high that selling the farm will make it virtually impossible for a next generation to become farmers, at least in the context of farming as it is now understood.
Even the option of retaining ownership, renting for a period of time, and restarting operations at some point may be problematic in terms of a next generation returning to farm.
The thinking here is to look for ways to keep the business operating and advantageously positioned so there is at least an option for grandchildren to consider.
A key consideration with this is the financial ability of the farm’s business to be able to employ a manager, while also providing adequate retirement cash flow. Economies of scale can be an issue.
For example, I’ve talked to a couple of farmers in the past few weeks who are wondering if and how a joint venture might help them in capturing the economies of scale needed to retain ownership.
Joint ventures is a completely different topic, but the point is there are options that can be considered if there is a desire to have the farm business continue.
Is it succession planning? Perhaps not in a traditional sense, but yes it is, and business continuity planning as well.
Terry Betker is a farm management consultant based in Winnipeg, Manitoba. He can be reached at 204.782.8200 or terry.