With the continuing increase in farmers' ages and farmers 35 years and younger comprising less then 10% of the population, more and more farmers are starting to have to consider retirement and what they will do with their family business. Should they sell it or can they pass it on to future generations? This is an important decision and one that affects the whole family.
Many people prefer to avoid this topic and figure they will just let the future generation deal with it. It seems like such a daunting task. They don't know where to start, they have to confront their own mortality and they find it a difficult subject to broach with family members. This may seem like the easier route but it can cause a lot of hard feelings and feuding in the family and cost the viability of the business. There are numerous stories of families and profitable organizations being torn apart because they didn't have a succession plan. In many cases, families feud amongst themselves trying to do what they believe is best for the organization and themselves.
When a person starts to consider what to do with their organization, the first important factors one should consider is the time it will take to decide and implement their decision and how to open channels of communication between all those involved.
It is never too early to start planning, nor is it ever to late.  Owners have to realize it will take time to collect your thoughts, evaluate your options, discuss them with all those involved and implement your decision. The expected time frame required for a successful succession plan varies – based on whom you speak to – from two to five years to ten to fifteen years.
Communication is another critical factor. Open communication of your intentions, your expectations and the expectations of your family are very important. The channels of communication must be open and stay open throughout the entire process. If the lines of communication are not flowing openly, it may be more effective to bring in a trusted third party such as your accountant or legal council.
In most cases, owners have two primary options, sell the business or transfer it. Following are several items to consider for each primary option but by no means an exhaustive list or everything that should be considered.
If you sell your business you will want to:
- determine when you would like to retire
- determine if you would like to sell your business as a complete business or piece by piece
- make sure you have the proper time available to get the maximum value available
- determine the best strategy to minimize your taxes from the sale
Now, if you are planning on passing your farm to the next generation, there are even more options to consider. You will want to:
- determine when you would like to retire
- determine who will take over the business
- determine how you will divide the family business
- determine if certain individuals should receive consideration for the work they have performed
- determine if you should finance a buy out of other individuals not involved in the business with life insurance policies
- determine if there will there be enough funds after any division to keep the business liquid
- determine the best strategy to minimize taxes on the transfer
Overall, the decision of what to do with your family business can be a large task to undertake. Ensuring the lines of communication are kept open and ensuring you are happy with your decisions will greatly reduce the effort required and make the process flow much smoother.
This article only scratches the surface of succession planning issues. Collins Barrow recognizes this fact and publishes a succession newsletter to address these issues. Past issues of "Generations" are available online. For further information contact your local Collins Barrow office.