One of the most challenging processes faced by dairy and other farm producers in their careers is planning and executing a solid succession plan to ensure their business not only survives a major transition but also thrives in the next generation of leadership. This process intertwines economics with emotion, making it overwhelming and difficult for many to initiate.
Often, overwhelming tasks are postponed not because of their insignificance but due to the reluctance to make tough decisions that will impact families. A major stumbling block is determining fairness for the next generation, especially if not all successors are currently involved in the business. Equality may not equate to fairness when some successors are not active in operations. Given the escalating costs of asset ownership and the increasing scale of farm operations today, expecting the next generation to buy out other successors while maintaining the business is unrealistic. Nevertheless, there is a desire to provide for all survivors, making these tough decisions difficult to address promptly.
For those who have invested time and effort into creating a robust plan to support their successors, congratulations and thank you! Although future events may necessitate amendment, having a framework in place that all parties are aware of, understand, and hopefully agree upon is invaluable. Unfortunately, instances of inadequate or absent planning persist, leading to numerous adverse outcomes for businesses, both presently and in the future.
Set them up for success
It is disheartening to witness the next generation of producers, who are often responsible for a significant portion of daily labor and management tasks, lacking a clear vision of the operation’s future. While they may assume an opportunity for ownership and involvement in executive management will arise, there is often no guarantee. Without clarity regarding their future, it becomes challenging to expect them to give their full effort, which is crucial for business profitability. A negative culture within the organization can develop when the next generation lacks insight into their future, potentially leading to their dissatisfaction and discussions of seeking opportunities elsewhere.
When evaluating credit requests, lenders inquire about the presence of a next generation in the business and the plans for their integration. A long-term investment may not be deemed viable if the business lacks a sound transition plan or is perceived as terminal.
Commencing the planning process sooner rather than later is advisable, even if the specifics remain uncertain. Crafting a successful transition plan requires considerable time and input. Seeking guidance from experienced professionals, including attorneys, tax preparers, business consultants, and perhaps lenders, is vital. Each operation is unique, necessitating tailored plans to meet individual and business needs efficiently. It’s imperative to involve the next generation in discussions to keep them informed about your intentions.
It’s natural to assume there is ample time to address these matters, yet unforeseen events can significantly impact business longevity. If there is a next generation keen on continuing the legacy but a transition plan has not been solidified, it’s essential to engage quality professionals to initiate the process. Now is the time to act in the best interest of the next generation!
