Tips to Kickstart Your Farm Succession Planning
March 3, 2020
More than one-third of Iowa farmland is owned by someone over the age of 75*. That means it’s virtually inevitable this land will change hands soon.
Whether the process is a positive experience often depends on the existence of a strong succession plan.
Farm succession is a touchy subject for many farmers. And why wouldn’t it be? It signals the end of one generation’s career on the farm — something that in most cases represents something much bigger than just a job — and the beginning of a new generation’s leadership.
Beyond the apprehension common with retirement, the farm successor has his or her own reasons for anxiety. Can the farm be sustained and grown? Will the farm make it through the current grain market downturn? Can the new owner(s) make the necessary adaptations?
Finding the answers to those questions is not an easy task. And, there’s no farm succession “silver bullet.” Every farm operation is different, and every family is different. Commingling the two without the right planning can create a volatile situation with difficult outcomes.
Despite being such an important element of farm management, succession planning typically isn’t high on many farmers’ priority lists. This often means the transfer of ownership is rushed or completed last minute. But, creating a farm succession plan should not be done in haste. What's more, it requires the predecessor and successor to work together at every step in the process. Ensuring a good working relationship among everyone involved is critical to the success of the process, and it’s important to be attentive to that relationship throughout.
The process of building a succession plan — ideally well before it needs to be executed — starts with a close examination of every party’s wants and needs. It’s important to give every stakeholder equal time from the start. This self-examination phase — basically, a conversation — includes every party asking questions like these:
- What do I want from the succession?
- Are my expectations realistic?
- How do my expectations mesh with others?
- What do I want to happen to the farm?
- Am I willing to compromise to make that happen?
Once those questions have been answered, it’s important to share the answers so everyone’s thoughts and feelings are out in the open. Failing to do so — especially in a process involving the transition of a large number of assets — can sometimes breed resentment that can come back to haunt the succession process later on.
It’s important each of the parties is striving to strike a “fair deal.” If you’re the predecessor and you have financial expectations exceeding what’s sustainable for the successor, it may require an adjustment. A fair succession plan also may require the successor to make short-term financial sacrifices to sustain the farm’s long-term viability. These are just a couple of the types of changes the process may require of one or both parties to reach the mutual understanding necessary to move deeper into the process.
The answers to initial succession planning questions may not always reveal in common between predecessor and successor. If that’s the case, it is important to take action to create that commonality, which can be a tall order. Here are a few ways to make that a more productive process.
- Acknowledge common goals. Every succession plan has the same ultimate goal. Yet, in the throes of serious discussion about family business issues, that goal can get lost. Reminding everyone of their collective hopes for the same positive outcome may help the process move forward when it gets stuck.
- Remove emotion from the discussion. Anytime family is involved in a farm succession plan, it can ignite hot tempers, dredge up latent resentments and create conflict fatal to the planning process. Start with an open acknowledgment that emotion has no place in the planning process. This enables all parties to address important issues with a cool head. If you feel negative emotions welling up, take a step back, a deep breath and think back to that common goal.
- Be honest. Yes, this can sometimes cause more conflict than cooperation, but it’s important to be completely forthright in guiding a farm’s future through the succession process. Failing to enumerate specific goals and needs will leave you unfulfilled. It may also lead to a situation in which it’s difficult to remove emotion from the process.
- Be flexible. Mick Jagger was right: You can’t always get what you want. That doesn’t mean you’re necessarily “losing.” It’s just as important to adjust so every party gets a version of what he or she proposes. Enter the conversation willing to be flexible so everyone walks away satisfied.
- Put yourself in their shoes. It can be difficult to understand the needs of other parties involved in a farm succession process. Take a moment to consider what others think and feel going into the planning process. Putting yourself in the other generation’s shoes can help you reach identify with shared goals more quickly and easily.
End the conversation with a handshake or an equivalent gesture. It’s important to always keep the tone positive and progressive. There may be bickering and arguing, but as long as you come way from the process amicably, your farm and family will be better equipped to succeed.
Once the predecessor and successor generations are on the same page, it’s time to build a plan that will ensure a strong future for your family’s farm operation. For this step, you will enlist the services of accountants, ag lenders, attorneys and possibly a farm succession specialist to help clarify the necessary next steps.
At Bank Iowa, we know agriculture. Many of us come from farm families. Our ag lenders are part of their communities and know well the challenges farmers face in laying out the future for their operations. And, we’re here to help. If you’re thinking ahead to the future of your farm, contact your local Bank Iowa location to learn how our experts can smooth the rocky road of succession planning.
*Iowa State University Center for Agricultural and Rural Development (CARD).