Michigan has over 47,000 farms, operating on 9.8 million acres across the state. 95% of those farms are family-owned. With the average age of farm ownership creeping upward to 56, the question of who will inherit those family farms is becoming a pressing issue. A smooth transition of ownership and operations on the family farm depends on advanced planning that takes into account realistic expectations on a practical, personal, and financial level.
Succession Planning Must Start with Honesty
Any successful plan to pass the family farm on to the next generation depends on the people at the table being honest. Everyone involved needs realistic understanding of the current status of the farm, its projections going forward, and their own interests in the business. As a farm owner, perhaps you inherited your livelihood from your parents and assume that you will leave your property to your children after you are gone. But if your children have other expectations, your succession plan could fall apart at the moment you expect it to be implemented.
However, because your farm is a family business, you also need to recognize the effect relationships will have on those conversations. It may be difficult for children to tell parents the truth about their future plans. They may be worried about disappointing you, or not living up to your expectations. If you are beginning your family farm succession planning, it may be wise to bring in a consultant who can meet with all the interested parties individually, where they feel more willing to discuss their preferences candidly. This can help you base your succession plan on realistic expectations on who will, or won’t, be stepping in to fill your shoes.
What Family Farms’ Thin Financial Margins Mean for Succession
Passing down the farm isn’t necessarily as easy as writing a will – though that is part of it. Often, the older generation of farmers may need to make plans for how they will fund their final years, when they either can’t or don’t want to be working in the barn or the fields every day. In many families, the farm’s thin financial margins mean the older generation doesn’t have much in the way of retirement savings. At the same time, kids who have grown up working on the farm may not have had access to financial resources that will allow them to buy into the family business as early as you might like.
You should work with a consultant to take a realistic look at the finances and investment financing available to transfer property ownership well before you are ready to sign the paperwork. Depending on the circumstances of everyone involved, it may take months or even years for the next generation to build the savings or the credit to be able to assume ownership. Your children may even need to shift to being part-time farmers for a while so they can build their financial reserves and prepare to execute your succession plan.
Building Your Farm Succession Planning Team
The big decisions involved in a family farm succession plan aren’t easy to make on your own. You will likely need the help of experts who can advise you about:
- Estate planning
- Financial planning
- Investment and lending options
- Commercial real estate issues
- Farm management strategies and techniques
- Tax implications
- Interpersonal disputes
- Leadership management skills
A business consultant can serve as the liaison between these experts, helping you recruit the right people and keeping everyone focused on your family’s future. That consultant can often provide some of the expertise you need, guiding you through interpersonal disputes and coaching the next generation as they step into leadership opportunities within your family’s agricultural business. They also provide an objective perspective to help you weigh your options, and an external ear for family members who need help expressing their own desires and perspectives. By bringing a succession planning consultant on early in the process, you can help smooth the transition to the next generation, and make sure your farm stays in the family when you are ready to step away.
David Stanislaw is an organizational development specialist with over 25 years’ experience helping family business owners plan for the future of their companies. Through business succession planning and executive coaching, David helps family farms and agricultural businesses carry on and grow even as their owners retire and successors takes over. Contact us to meet with David to start building your family farm’s succession plan today.