farm business succession planning john r. baker attorney at law beginning farmer center...

Farm Business Succession Planning

John R. BakerAttorney at LawBeginning Farmer Centerjrbaker@iastate.edu1.877.232.1999

Photos by USDA NRCS

AcknowledgmentsAndrew Errington – University of Plymouth, UK Walter Warrick – Prof. of Bus. Mgt, Drake University (retired)Don Hofstrand – Farm Management Field Specialist (retired)Beth Fleming – Family Resource Management Specialist (retired)Phil Hufferd – Farm Management Field Specialist (retired)Mike Duffy – Professor of Agricultural EconomicsMargaret Van Ginkel – Family Resource Management Specialist Kelvin Leibold – Farm Management Field SpecialistJames Jensen – Farm Management Field SpecialistAndy Larson – Extension Program SpecialistDave Goeller – Farm Transition Specialist, University of NebraskaKiley Mars – Owner, InSightOut, LLC

Don't be afraid to ask dumb questions.

They're more easily handled than dumb mistakes.

William Wister Haines

A Critical DifferenceHow we define “family”, the priorities, expectations, relationships, and measures of success in a family are, and should, be different than the priorities, expectations, relationships and measures of success in a family owned business.

Identify Which System

• It is imperative that you identify and operate in the system that is appropriate in a given situation.

• It is appropriate to behave as a family at a holiday.

• It is not appropriate to behave as a family at a business meeting.

“Entry into farming is a process, not an event.”

Dr. Paul Lasley

What to do with the Farm/Ranch?

The essential question that must answered:

Do you want to transfer the ranch/farm as a “viable

business” or simply as a “group of assets”?

THE FARM

Money Management

SUCCESSION PLAN

BUSINESSSUCCESSOR

HEIRS

Owner’s priorityContinuation of family ownership of farmland

Owner’s priorityContinuation of farm family business

Assets

ESTATE PLAN

Business Succession Planning

HereWhat is here?Why is it here?Who is here?Why are they here?What are they doing?Why are they doing it?How is it being done?How well is it being done? Profitable? Increasing wealth?

Here and Now There and Then When is “then”?Where is “there”?

ThereWhat is there?Why is it there?Who is there?Why are they there?What are they doing?Why are they doing it?How is it being done?How well is it being done? Profitable? Increasing wealth?

Farm Business Succession PlanningHere and Now There and Then When is “then”?

Where is “there”?

NowWhat is happening: In our lives?In our families?In our industry? On our farm?

ThenWhat is happening:In our lives?In our families?In our industry? On our farm?

Why don’t we Plan?

•Too Complicated

•Don’t like to Plan

•Facing our own Mortality

Small problems are hard to diagnose and easy to solve.

Nicolo MachiavelliThe Prince, Book IV

Big problems are easy to diagnose and hard to solve.

When is it not necessary to develop a farm business

succession plan?• When you do not care what happens to

the farm family business.• When you do not care if your heirs own

and operate the farm family business.• When you can afford to lose money or

assets or managerial control.• When you do not care what happens to

your spouse.

ANSWER THE DIFFICULT QUESTIONS

Do the owners desire to continue family ownership?

Can the family withstand the stress of succession planning?

Can the family withstand the stress of not planning?

Is there a successor capable of managing the business?

Does the successor want to manage the family business?

Will the owners recognize the authority of the successor?

Will the owners transfer management to the successor?

Will the owners develop a business succession plan?

Are all interested parties identified, informed and involved?

Is there a mutually agreed upon decision-making process?

Is there a compatible vision for the future of the business?

Have the roles that need to be filled been identified?

Have successors been chosen for key positions?

Have training plans been developed for those positions?

Is there an estate plan with equitable division of property?

Have contingency plans been developed?

IF YOU WANT YOUR BUSINESS TO CONTINUE BEYOND YOUR

LIFETIME– You must create a business

succession plan.

– Planning takes place when the seat of the pants meets the seat of the chair.

– Planning is not does not create certainty.

– Making a PLAN will improve your chances for a succession.

– To be effective plans must be shared.

Planning is deciding

How long the will the transition last What management decisions are

delegated to the successorWhich assets are transferred and when When does the owner retireWhat retirement means What is the source or retirement

income

– Implementation requires: Hiring professional advisorsPaying for professional adviceReviewing documentsSigning documentsTransferring ownership of assetTransferring management

Planning includes implementing the

plan

Presented by:

John R. BakerAttorney at Law

jrbaker@iastate.edu1-800-447-1985

Beginning Farmer Centerwww.extension.iastate.edu/

bfc/877.BFC.1999