The author is a freelance writer based in Rockford, Ill.

A farm is as much a home as it is an operation. Family and business are often inseparable. How, then, does one navigate conversations about succession planning and generational wealth while dealing with complex relational dynamics?

On an episode of the Dairy Business Association’s “Dairy Stream” podcast, Jud Snyder of BMO Wealth Management and Brad Guse, an agricultural banking officer for BMO Commercial Bank, discussed ways in which farm families may navigate these difficult conversations and offered financial advice for those beginning the process of succession planning.

Thinking ahead

Currently, the average age of the U.S. farmer is about 60 years old. This means there is mounting pressure on the next generation to carry the torch for the dairy industry. In the past, succession plans were almost exclusively generational transfers; now, there are many alternatives to family inheritance, making economic intrafamilial decisions increasingly complicated.

“Businesses have gotten large and complex to the point that thinking ahead about the future of succession planning is critically important,” Snyder said.

Guse added there is a place for everyone in the marketplace, but things may look different from farm to farm.

“In general, it takes 70 cents to produce $1 dollar of gross revenue. Of those 30 remaining cents, 20 cents go toward providing capital, and the remaining 10 cents go toward profit or operating costs,” Guse said. “At the end of the day, it’s about how many dimes you get to keep out of each dollar.”

Considering worth

When it comes to preparing for the future, farm owners should start by thinking small-scale, dime-to-dime. This will help generate more revenue that gets to stay within the family.

Generational wealth goes beyond saving dimes, though. It is a term that refers to wealth that is passed from one generation to the next — rather than a fixed sum — and may comprise of a family’s work over multiple lifetimes, including such considerations as reinvestments, availability of liquid assets, working capital, and unexpected changes such as marriage, divorce, or death.

How might a farmer approach generational wealth in a way that will best benefit his business and its future generations? Snyder and Guse said that being prepared for the unexpected, having open conversations, and planning ahead are the surest ways of doing so.

If a farmer is planning to sell rather than pass the farm down, Snyder defined a “trifecta” of confluences they ought to look for, including macroeconomic trends such as land valuation, interest rates, and global commodity prices; the right strategic environment; and the right time for both seller and buyer. Hold off selling when appropriate, but have an exit strategy ready for when these considerations align. Consider, too, the structure of the deal and how proceeds will be disbursed.

“It’s a deeply personal decision,” Snyder said. “If you don’t have a successor or someone courting you as a strategic buyer, it can be even tougher.”

Find support from professionals or family members, and start the process early to avoid exacerbated stressors.

Practicing prudence

When it comes to discussing the farm’s future with those involved — usually one’s own family members — Guse and Snyder admitted it can be difficult to find a balance between personal and professional. What are the next generation’s aspirations, and do they align with the current generation’s?

Both bankers emphasized that having these conversations early and often is key. There is no such thing as “the right time,” Snyder said, so if you wait for it, you’ll be waiting for a long time. Make an effort years in advance of a transition to sit down and discuss options.

“Once a plan has been decided on,” Guse added, “revisit it multiple times to ensure it still adheres to the parties’ best wishes.” Businesses — especially family ones — change over time, so make adjustments to the succession plan accordingly.

They noted, too, that inviting a third party to sit in on these conversations can be a big help. Emotions and opinions tend to be amplified when money meets relation, and being able to discuss options with a specialist can make all the difference.

Plus, giving the future generation a seat at the table doesn’t mean the current generation has to eat on the floor. It’s all about clear and transparent communication. Rights, risks, and responsibilities can be shared as well as they can be passed on.

Moving forward

The biggest takeaway from everything they discussed, Snyder and Guse agreed, is to be proactive about succession planning.

“There’s a great intersection in our industry between business and personal. It’s what sets agriculture apart from other industries,” said Snyder. “Finding time to sit down and learn what kind of an impact a sale or a business transition will have on the farm and on the family is the biggest advice I have. By being prepared for it, you can have a much better outcome for you, your family, and for generations to come.”