7 Tips for Farm Succession Planning
Updated: Nov 7, 2022
According to the most recent family farm statistics in the US, 98% of all farms are actually run by families and contribute to 88% of our food production. Generally, most family farms — small, midsize, and large-scale — are neither low-income nor low wealth, as median household income increases along with farm sales. It is necessary, however, to ensure continuity on these farms for the next generation onwards. This can be achieved through succession planning, or the smooth transfer of leadership (and in many cases, ownership) or a business, so that it can thrive even when its current owners leave. Farm succession planning is a complicated process that takes 12–24 months to execute, not including the time it takes to reach an agreement. Unfortunately, many farm owners put this off until they’re almost retired, as they often are too overwhelmed to start. This doesn't have to be overwhelming if you take small steps.
What is farm succession and why is it important?
As mentioned earlier, farm succession is a set of contingencies put in place by farm owners to ensure that their property continues to prosper once they have stepped down from management. Proper succession planning is all about helping operations run smoothly and without interruption during this transition period. A successful succession plan ensures that you can rely on your successors to carry out the mission and the vision of your organization, as well as accomplishing key goals. Many strategies often rely on heavy employee involvement, with the end-goal being upskilling and promotion. It also encapsulates any long-term plans to help the new farm manager to gather their bearings before fully transitioning into a leadership position. Lastly, farm succession planning is all about adapting to new changes brought on by new leadership. It is important for farms, especially those run by families, to have a succession plan in place to ensure that there will be no conflict in terms of the flow of management. This will also prevent any legal battles from popping up between possible inheritors, ensuring that all assets are divided as the previous owner intended. Having a good succession plan also ensures that the next generation of leadership has requisite knowledge of the farm’s operations and is equipped with the right capabilities to help the business continue growing. While many people think that a family business doesn’t need this kind of plan when it comes to succession, it will actually help save everyone from operational, logistical, and emotional headaches in the long run. Without a clear plan, it is possible for a farm’s operational structure to crumble and cease functioning. As not only your business’ leader but as the head of your family, it is your responsibility to prevent that from happening. It can be a tedious process – but one that is definitely worth an immense amount of attention. If you’re feeling lost or confused about where to start, here are a few tips you can begin with for your farm succession planning:
1. Be clear in your communication
According to agricultural economy researchers, farm family businesses that actively discussed their goals, identified successes, and were educated on the transfer process were more likely to make progress in both management and ownership transfer. The initial discussion doesn’t have to be formal; you can simply call a family meeting to initiate the process. Be sure to include everyone who will be impacted. If you already have potential successors in mind who are capable of running the farm, ask if they want the job so you’re sure to be on the same page. If there are multiple successors vying for the role, talk about the potential for sharing responsibilities or consider ways to separate the operation so they can run viable agribusinesses independently. Remember, this is an emotional decision for all, so you have to communicate clearly over potential disagreement and conflict.
2. Structure a succession timeline
As previously mentioned, many succession plans can take anywhere from a year to two years from finishing. Sometimes, it can take even longer than this, depending on what your plans and ideas for your new successor may be. It is critically important to note that implementing a hasty succession plan can spell trouble for your business, since it may leave the next leader with less time to understand what you have curated in your business, less time to create their own strategies and bring those ideas to fruition. Research has also found that a total assessment of the farm’s capabilities is important in helping minimize any economic risks succession might bring to the business. The study echoes the fact that time is needed to help new leaders create well-thought-out policies and regulations once they have taken charge of the business. An effective timeline should always start with a training and trial period. In a scenario where you are stepping down, you should give yourself a few months to impart important knowledge to your successor – teaching them the ins and outs of your business and of the industry. Then, give them a trial run and have them make important decisions under your guidance to see if they are ready to take over. After this, cede complete power to them and reiterate to your employees that they are the new head of the business. This will ensure that workers will listen to your successor and give them the same respect you were given. A slow and steady transition will allow everyone to get accustomed to the change in leadership, and allow you to gauge the capabilities of your successor or help correct mistakes during this learning period.
3. Assign roles during the transition
In the case of many heirs, both farming and non-farming, you can identify the various roles and responsibilities available. It’s likely your heirs have various strengths that can make them a good fit for farm operations, crop sales and grain marketing, or capital and financial management – to name a few. You will also need someone to oversee the day-to-day operations of your farm with a unified strategy in mind. As a business leader, they would need to have a knowledge of economics, finance, marketing, management, and operations. Obviously, this is a tough requirement; which is why those with extensive business administrative training are so highly-sought after for their skill sets. It helps to choose someone with a mix of know-how both on and off the farm. This person could be on top of the hierarchy in decision-making, or you can decide on a more egalitarian approach. During the transition, your family should test out this system so you can improve on it.
4. Create measurable goals
It is also important to determine whether or not your succession plan is successful and effective. Thus, it's necessary to set visible and tangible goals to meet. A study on measuring effective succession planning explains that there is no one-shoe-fits-all when it comes to different organizations – the same can be said for your farm. You should be creating metrics based on what you want the next leader to achieve, since these goals will lay a clear path and serve as a way to determine if you are on the right track. One thing you can look at is your employee’s satisfaction levels. This can be done through a formal survey or through simple interviews. How your employees feel, especially those who have worked on the farm for a long time, can tell you a lot about how operations are going. If they think that things have gotten more difficult since the transition, it might be time to make some changes to your strategy. You can also look at other factors, such as cost vs. revenue. If you are spending more than you are earning, there might be an issue with how your successor is handling farm finances, which should be addressed as soon as possible. This will prevent your operations from sinking into debt. Having a good metric of effectiveness will help you determine whether your succession plan is effective or not and can be a way to make necessary adjustments.
A place to measure this would be having a farm management software to track these numbers. We're biased of course, but this is the best way to keep track of your farm business all in one place. It is up to you to decide the best way to do that but whether you use a management tool like Farmbrite or a spreadsheet make sure to keep good records.
5. Be sure to account for finances
Speaking of finances, operations may slow down at the beginning of a succession plan. Your heir might want to make structural changes to better meet their vision for your farm or employees might need an adjustment period to get used to the new leadership. Because of this, it is important that you pay attention to your finances during this time. Aside from the other factors touched upon earlier, there are many other factors that you should account for aside from expenses and revenue. You should create contingencies just in case money continues to come in more slowly than anticipated during the transition period. Since the environment can be a key factor in whether or not your farm will profit for the season, you might want to consider setting aside money for agricultural insurance, which can be used when the time is right. This will alleviate any environmental factors out of your control — which could make the succession period harder and more stressful — as well as ensure that all your workers will still be able to receive the right pay and benefits as scheduled. Finances can also signal growth, so paying more attention to your profit’s trajectory at this period will let you know if you've chosen the right person to take over after you have stepped down. Keeping detailed entries on your operation’s cash flow might seem like a small thing but it can truly tell you a lot about the effectiveness of your strategy and other contingencies you need to put in place.
6. Tackle tensions and potential sources of conflict
There are many ways succession planning can go wrong. At the heart of it, however, is ensuring you value everyone’s input through open, honest discussions. Everyone should have the chance to be heard and feel respected. When it comes to assets, for example, be transparent that being fair is not necessarily being equal. For instance, if only one child will be on-farm while others are off-farm, then it would help to set expectations early on. You also want to prepare ahead for any circumstances that can change in the future. Death, divorce, disability, or disagreement can throw your succession plans off, so these should be included in discussions as well — ideally along with relevant paperwork, like legal documents or insurance policies. Planning for the worst can spare your heirs the heartache down the road. Once your plans are set, be sure to formalize all agreements. Organization will be your friend, so nothing will be forgotten or left to chance. Keep track of farm records on one platform, rather than storing information across separate spreadsheets and documents. This will keep all pertinent information in one place and help successors easily gain access to the data once they are the head of the office.
7. Ensure the legality of your succession plan
When running a family business, your possible heirs might fight over who should succeed you as the head of your farm– especially if your stepping down happens due to unforeseen circumstances like sudden death. Making your succession plan legally binding – either through a contract or a will – is a way of avoiding unnecessary quarrels from happening between heirs. This is a written form of your strategy. It should list everything from who will succeed you as head of the farm, which assets go to whom, and even the ideal time frame of when everything should take place. You should draft this and have it reviewed by a trusted lawyer as soon as possible. This will take away any difficulties a sudden departure might cause your family, and provide them with actionable instructions to follow, so they can continue running operations — whether on the occasion of your retirement, an accident, or on your passing. Be sure to include other details such as how many shares each person will have, how much income they may continue receiving, and other eligibility requirements for becoming your successor. Without anything legally binding, the heir to your company might not have the right leverage and knowledge to navigate the agricultural landscape properly, leading to troubled times for your business. For a farm run by a family, succession plans pose an important and much-needed structure to aid in keeping your business running once you have stepped down. It is essential for you to take the right steps and form this plan well-ahead, to ensure that operations continue running smoothly for all the generations to follow..
J Martin is a freelance writer and researcher. She covers a number of topics, including business, agriculture, and sustainability. She is particularly interested in how family farms operate. When she’s not working on her latest piece, J enjoys tending to her backyard garden at home.