Setting up success with succession planning

By Matt Reese and Joel Penhorwood

With the topic of farm succession comes a number of less-than-pleasant potential conversations between generations. Farm Credit Mid-America’s Melanie Strait-Bok, senior vice president of agricultural lending, said FCMA financial officers can be a great resource for tools and advice to work through those tough conversations. 

“I know everyone makes the joke that a farmer never retires, but succession planning goes beyond retirement. It’s looking at how to have a viable operation today and move that viable operation into the future, whether that’s transitioning to the next generation within the family or bringing in somebody outside the family,” Strait-Bok said. “How do we make sure that we can bring in the next generation of farmers so that they can be successful and learn? When you think about succession planning, I know conversations might be slightly difficult, but that’s why you have individuals around you to help like your financial officer at Farm Credit, your accountant and your attorney. There’s a lot of different people that can work together as a team to make sure that you see all perspectives of succession planning and what’s best for your operation. I think for a lot of people that unease of the conversation keeps them from wanting to do succession planning. Agriculture is different from other industries in that it is a way of life. The farming operation helps us teach hard work and values to our children, but the farm is also a business. Emotions run high at times.”

A financial officer can bring a neutral, outside viewpoint to conversations focused on the ultimate success of the operation.

“Any time you make an assumption or you don’t share something, you’re leaving it open for interpretation. Some of the success stories are where they had the clear, concise communication and didn’t shy away from conversations that may be perceived as difficult. These conversations go the best when they use their resources that they can lean on and ask some of those challenging questions,” she said. “This allows you to get a plan in place that allows the next generation to continue to find satisfaction in their role and learn how the older generation does aspects of the business. Then we get into the financials. When you start to blend that in and make some of those decisions along the way, it allows you open up more conversations.”

Another part of the process is determining who should be included in the planning conversations.

“Within the operation, who is helping make the decisions on a day-to-day basis? One family could have three generations sitting at the table walking through all those pieces or it may just be two people that need to be at the table. You really have to think about your operation, who you want to be involved and who needs to be a part of those conversations,” Strait-Bok said. “Then it’s about holding yourselves accountable to get together to sit down to go through everything and talk about the decisions that were made. Maybe it’s once a week, once a quarter or post-harvest so everybody knows what has been done and what needs to be done.”

Once these pieces are in place, a lender can provide clear perspective on some of the financial decisions being made.

“If you want to put up this hog barn and that is going to be the avenue to bring back the next generation, we can walk through who would own the asset and what should be taken as collateral so that it doesn’t impact the transition and succession that you’re wanting to put in place. We also have tools like leases where we could lease the asset, and then the next generation buys it out at the end. There are ways to mitigate taxes and a lot of tools we have at Farm Credit Mid-America that we can walk through to help accomplish your goals for this year, for five years, for when you want that next generation to be able to start taking over the farm,” Strait-Bok said. “Think about cash and how you make purchases. Does it make sense to set up an entity for the equipment and then the next generation starts buying shares in that entity? Or does it make more sense that the next generation just starts to buy pieces of equipment that need to be replaced? Both work well depending on what you’ve set up from a succession plan standpoint. Your financial officer can help offer solutions that’ll fit best with the plan for your farm.”

For more visit FCMA.com/growingforward.