When we think about a legacy plan for the farm, we often think of the legal documents first – wills and trusts and estate planning. But in reality, the top reason that family farms fail to transfer to the next generation is a lack of succession planning.
In some farm families, the older generation makes all the decisions. They set the priorities for what's going to happen on the farm. Sometimes when the younger generation asks what the future of the farm is going to look like, the older generation responds, "Someday, when this is yours, you can do anything you want. But until then, I'm in charge." That's what I heard from my dad.
That can create real fear and worry in the next generation, but it doesn't have to happen that way. Tell the person you envision leading the farm in the future – your son or daughter, or a key employee – so they can begin to prepare.
Get your successor on the same page with you. Give them the chance to make some real choices – and hold them accountable for their decisions. Remember that they don't have to do everything exactly the same way you do it – because their skills and abilities are probably different than yours.
That's hard because we usually want things to be done our way. But letting go has to happen as we work through a succession plan. We know the next generation is going to skin their knees along the way. It's best to let them make some of their own mistakes while we're around to coach and train them through it.
Have them go to meetings with you – with your seed dealer, your banker, your crop insurance agent, your advisors. They need a strong understanding of how these relationships work. Some families put young leaders in charge of 80 or 160 acres. They are responsible for making that acreage profitable – and in the process, they learn how to make a balance sheet work.
The next generation has to be aware of what they're getting into – the financials, the processes. Transparency is really important – and can be intimidating. I think of it as letting someone else climb around in your mind. What will they see? Is it something we'd want them to see?
Chances are that if you're farming today and thinking about how to pass your farm to the next generation, you're already running a successful operation. The key to a good succession plan is figuring out how your successor can draw on your years of knowledge and expertise.
What will the succession plan for your farm look like? Do you know who will be the next leader? Make a plan to train and develop them for that job.
Darren Frye grew up on an innovative, integrated Illinois farm. He began trading commodities in 1982 and started his first business in 1987, specializing in fertilizer distribution and crop consulting. In 1994, he started a consulting business, Water Street Solutions to help Midwest farmers achieve success through financial analysis, insurance, commodity marketing, and legacy planning. The mission of Finance First is to get you to look at spreadsheets and see opportunity, to see your business for what it can be, and to help you build your agricultural legacy. Contact Darren at firstname.lastname@example.org.
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