If you own and operate an Arizona family farm or ranch and haven’t planned for generational succession, are you prepared for the family farm to go out of business?
You know well that most primary owner/operators in farming are in their late 50s. We’re also being told that an estimated 70% of U.S. farmland will change hands in the next 20 years
In fact, it’s a regular occurrence in Arizona for a neighboring farm to transform into a cookie-cutter housing development.
Kevin Spafford, author of Legacy by Design: Succession Planning for Agribusiness reminds us, “we can’t keep doing what we’ve always done and expect a different result.”
He suggests there are three big areas of concern that must be addressed.
1. The first is incompatible estate planning. Most estate plans are designed to distribute assets, including the farm, equally among heirs. This action effectively pits the needs of family members active in the operation against the wants of inactive heirs.
2. The second is insufficient capitalization. Most farmers have not planned for a retirement option, and they’re unprepared for the financial obligation of bringing in a next generation.
3. The third is a failure to prepare the next generation for leadership. Most kids can do the requisite chores, yet they haven’t made a financial commitment, signed a contract or written a check.
Financial analysts and others with an expertise in this area highlight that a plan is necessary to effectively resolve these issues. With proper planning, you can insulate your family from exposure to the liability of transfer taxes, preserve family values and pass the farm on.
Based on what our Farm Bureau members suggest and have experienced, Arizona Farm Bureau recommends the following five success strategies will help you achieve your succession goals.
1. Learn and utilize good communication skills.
A lot of family members may be involved. So, respect and constructive communication are a core prerequisite when you begin the process of generationally transferring your Arizona farm. Good communication will help you, the family and loyal employees navigate the succession planning process. Communication is more than talking. It’s listening to learn, and then making sure your actions support your message. Work to set aside personal biases and stubborn attitudes about farming operations.
2. Clearly define your succession goals.
As an owner, you must acknowledge that the decisions you make and actions you take will affect many others, possibly for generations to come. You must consider the wants of next-generation leaders, your own needs and the demands of the operation. Focusing your efforts on what’s best for the business will result in an operation that will continue to provide financial security to you and other active family members.
3. Overcome common planning obstacles.
A succession plan must overcome hurdles that are common to every family business venture. But these obstacles should not keep you from your effort. Every worthy cause has challenges. Common obstacles often include:
- Identifying the right successors.
- Ensuring financial security for the owners.
- Designing a workable ownership transition.
- Involving extended stakeholders---loyal employees, customers, and non-farm family.
4. Continue to stabilize and grow the operation.
If the farm is going to survive and continue to endow the current owners in retirement while providing future opportunities for the next generation, it must remain vibrant and healthy. Your farm will reward the family in direct proportion to the care it’s given. The opposite is also true. If a business is not healthy, financially and structurally, it cannot possibly continue to survive, especially through an ownership transition.
5. Take definitive action, and stay on course.
Good intentions without action are just hollow promises. They don’t mean anything, and they’ll never lead to a successful result. Each stakeholder plays a vital role in the succession planning process. From the very first step to implementation, from accountability to professional development, each person must accept the obligation for a successful outcome.
If you’re wondering if there’s a “right time” to start planning for succession, you’re probably already behind on this worthy family endeavor. The most important part of succession is a plan, and the most important step is the first. And a first step is to contact your Farm Bureau agent.
Farm Bureau Financial Services is planning a series of workshops on Estate preservation. Watch for dates and times on this blog. In the meantime, join the Farm Bureau and earn discounts including member discounts to educational workshops like these.