Farming is a generational occupation, usually passed down from one heir of the family to the next. Many years ago, passing down the farm to an eager son or daughter was an easier process than it is today. Machinery, cows, and land all have a hefty price tag, making it more difficult for young farmers to buy into the dairy. In a recent Purdue University Transferring the Farm Legacy webinar, extension educators Ed Farris and Mike Langemeier gave tips on how to navigate transitioning the farm over to a new member.
Beginning to think about transitioning the farm into someone else’s hands can be scary and confusing. With so many focus areas on a farm, it can be hard to know where to even start. The first step in the process is sitting down and calculating what you have and if the farm will be able to absorb another person. Ask yourself, is the farm profitable enough to support another person? Can management responsibilities be shared? If so, what management traits does this new person have?
The farm may have to grow to incorporate an additional person. Ask yourself if you have the resources to expand. Identify competitive advantages that your farm may have and examine financial feasibility. Articulate a vision and position your farm accordingly.
From a financial standpoint, determine if your farm has enough cash flow to cover the costs and debt payments that come with expansion. “It is very important to have enough cash flow to replace assets that are obsolete,” warned Langemeier. Consider if you have enough cash flow to replace depreciable assets and purchase land. It is extremely important for the new person to build up equity as ownership slowly transitions. Generally, the older generation has equity to fall back on, but the younger generation doesn’t. “It’s important for the farm to build equity, but it’s more important for the young person to build equity because they may become the main decision maker,” noted the educators.
People needs
Additionally, gauge the management skills the successor will bring to the farm’s table and decide if the operation has room for them. Langemeier identified stages that are key in deciding whether this person is ready to be involved in the farm. Start small and give the successor a few management tasks of the business that are theirs and progress them into taking on larger responsibilities.
- Transfer stage: Set a wage agreement and form an incentive plan.
- Commitment stage: The younger generation begins to contribute property and management in addition to labor and business.
- Established stage: All parties are fully engaged.
As an older generation sits down to discuss the specifics of a farm transition, keep in mind that this is a generation that is different than the one you entered the business with. Don’t assume that the younger generation wants to come back to the farm or will fit into the role you think that they are cut out for. Identify their needs and wants, and clearly define your expectations of them. “The younger generation wants to know where they fit in. Designate who is responsible for key areas so something doesn’t slip,” said Langemeier.
Having these conversations are ultimately the hardest part of the transition process because emotions become involved, and you are often dealing with friends or family. “People come in with expectations, and if they’re not met, that’s how you lose people in business,” noted the educators. Be honest and clear to your successor about the future of the farm.
