by Katie Navarra
Creating a transition plan to make sure a farm continues as a productive business can be challenging. Cornell Cooperative Extension hosted part one of a two-part workshop to offer farm owners a chance to learn about the process of succession planning. The Farm Succession Retreat provides tips for farmers for beginning the process if they haven’t already done so.
“There will be change in the business regardless of whether or not you plan,” said Elizabeth Higgins an ag business management specialist based in Ulster County. “People will die, markets will change — but planning for different scenarios gives you some control over the outcome.”
A significant focus in the succession planning is the transfer of the business from one generation to the next. However, creating a succession plan also makes it more likely business owners will achieve the outcome that they want for their farm business.
When to start planning
Higgins recommends to begin planning at the same time you launch your business.
“The moment you start your business you should have an exit plan. It is easier to have discussions about what will happen if and when things go wrong before they happen, than it is in the midst of a crisis,” she said.
There are several key issues that need to be addressed. She refers to them as the “5 Ds”: Death, Disability, Disaster, Divorce and Dissolution. Part of ongoing business planning is addressing how your business will address each of these issues, any of which can shut a business down.
Start by considering how each one of the “5 D’s” can potentially derail the business. Identify the farm’s risk each issue and identify the key people who need to be involved. Then craft a strategy and process for addressing the problem.
Higgins uses disability as an example. For each of the key people in the business, what will happen if they are injured or have an illness and are unable to work for an extended period of time?
“You would need to identify the jobs they currently do, identify who could fill those rolls and for how long, consider how revenue would be impacted and if you need to hire additional staff,” she said.
This portion of the plan should also consider what the disabled employee would do for income and if disability insurance is needed and how to pay for it. It’s important to discuss how decisions would be made about the key person’s role in the business if their injury/illness made it impossible for them to do their former job for an extended amount of time.
Much of the initial process revolves around short-term planning. That is just the beginning of a more in-depth succession plan.
Once you’ve addressed the critical issues that could stop your business from functioning in the short-term, you can turn your focus to longer-term successional issues.
“The long-term planning includes identifying a successor, training/preparing successors to take over, looking at the finances and looking at the long-term viability of the farm property itself,” Higgins said.
Open communication is critical throughout this process and should include all of the affected parties. That includes children, in-laws and spouses. Establish a clear process for decision making so that everyone who is involved is comfortable with the process.
“This is often the biggest barrier. It can be hard to separate business decisions from family dynamics,” she said.
Larger farms or farms with more assets may have an easier time incorporating multiple generations at the same time into the business, allowing for a longer transition process. These farms also have more assets and infrastructure and therefore more complexity around the transition process.
“For a large, complex farm failure to engage in succession planning will make transitioning the business to the next generation much more unlikely,” she said. “Issues of financing, training and dealing with non-farming heirs can take time to resolve. This may be why there is a perception that succession planning is targeted towards these farms.”
Although potentially less complex, the succession planning process is equally important for smaller farms. Succession planning helps to ensure that the current generation is adequately prepared for retirement while helping the next generation to make decisions about farming on the property, helping to ensure that both generations have the best outcome possible.
“If there is a strong desire for both the current generation and the successor generation to continue a farm business, regardless of the size, succession planning is critical,” she emphasized.
There are countless resources available to farmers as they begin this process. In preparation for the Farm Succession Retreat, Higgins developed a website with invaluable resources. Visit http://bit.ly/farmbiz to information she has made available. “The links include guides to farm business succession, worksheets and exercises, a great business succession plan tool from the University of Minnesota and links to programs and resources,” she said.
Cornell Cooperative Extension staff in your county may be able to direct you to resources to assist you or provide direct technical assistance. The directory of local CCE offices as well as regional teams that cover that county is available at www.cce.cornell.edu .
Farm Credit East, FarmNet and NYS Ag Mediation are organizations that can provide invaluable assistance. FarmNet and NYS Ag Mediation can provide trained mediators to help with communication and decision-making. Both FarmNet and Farm Credit East offer business succession consulting services.
There are also lawyers that specialize in farm business succession issues. The American Bar Association can help direct you to other lawyers who specialize in agricultural law or business succession planning http://apps.americanbar.org/legalservices/lris/directory/home.html .
Nationally, the American Farmland Trust’s Farmlink program can help farmers find farmland or a person looking to farm. The organization maintains a calendar of events related to farm business succession planning and farmland transfer as well as links to resources and contacts like land trusts that can help with farmland preservation.
Day two of the Farm Succession Retreat planned for New York’s Capital Region is scheduled for Friday, Feb. 17, 2017 from 10 a.m. – 2 p.m. Contact Carrie Anne Doyle, Program Assistant, Commercial Agriculture and Community Horticulture for additional details at email@example.com or 845-340-3990 ext. 311.