Considering an exit from the farm or ranch can be just a little overwhelming. Not only do you have to think about who will take over and whether they are ready to do so, you have to analyze myriad financial and tax issues, assess your own mental readiness to let go, and perhaps even reach agreement with your significant other on what you will do with your "free" time. No wonder some people hang on too long!
The capital-intensive nature of agriculture, coupled with the unique income tax treatment of our industry requires both thoughtful and detailed technical planning as you ponder your next chapter. The challenges of being in business with family members and the emotional tie to the land and vocation of agriculture add yet another layer of complexity. These intricacies do not lend themselves to a one-size-fits-all retirement solution. Rather, I encourage you to think of these five steps in the process of planning your transition.
1. Take time to reflect.
What have you learned about the exit from prior generations or respected peers? Do you want a slow or a fast transition? Do you want to work some in the business for many years or step all the way out? What are your financial needs and desires? What are your goals after the transition? Are you and your spouse on the same page about how the transition should be handled? Writing down your answers to these and other key questions you have, and talking through them with family members or good friends, will help clarify some basic principles of the transition. Those answers also provide a good set of criteria you can use to test the strategies later proposed by your advisers.
2. Assess the key stakeholders.
Who needs to be involved in the conversation and at what level? You may have family members working in the business, and your departure will affect them. And if it affects your family members, it will likely affect their spouses, so you should consider having them at the table too when discussing certain aspects of the transition. You should also consider the impact on long-time employees and assess their support of the next generation. Your lender is also your partner, so determine how to inform and update him or her on your transition plans. Another way to identify those who need to be aware or involved in the process is to answer the question, "Who could throw a wrench in the process?" Not everyone needs to be involved in every step, but if their name surfaces with this question, you should consider various including them in some way.
3. Evaluate your advisers.
Surrounding yourself with good advisers helps you avoid mistakes while solving unique problems. In some cases, your advisers have been with you for decades and you know they will steer you in the right direction. In other cases, you may have outgrown those who have guided you, or the complexity of your business or challenges in your family require a different level of technical knowledge. Ask if your advisers -- your CPA, attorney, financial planner or insurance agent -- have completed similar plans. Can they work collaboratively as a team? Are they clear about your goals, or do they have an agenda or certain biases that need to be checked? Are you clear about how they are compensated? Answering these questions will help you decide whether the right professionals are around the table. If you need other advisors, seek referrals and consider interviewing several candidates. Getting the right team will save both money and energy over the long run.
4. Commit to a communication process.
Family business transitions are complex because they involve ownership issues, management strategies and family relationships. The path is not always clear; you sometimes get lost or confused, you occasionally have to change direction or strategies, and you may have misunderstandings between family. But if you can commit to a monthly or quarterly communication process, you force yourself to keep working through the challenges. What you find, if you continue meeting with your family and advisers, is that you make progress over time. In the consistency of communication, options emerge and solutions are found.
5. Determine a timeline and areas for gradual transitions.
It is daunting to think of turning over your life's work in one fell swoop. Instead of thinking of a date that you hand it all over, think about a transition timeline. For example, if you know you want to be working about 25% of your time in the family business in three years, think about reducing your time 25% a year beginning this year. Then, think about the activities that take big chunks of time and hand some of those off each year. It's not scientific by any means, but having an overall timetable and a general outline of activities to transition helps manage everyone's expectations about how the transition will progress.
Family businesses are fraught with challenges -- and that's before considering the "normal" trials of weather and markets. Figuring out an exit plan adds yet another charge to which you must find a unique answer. Engaging in these five steps with your family and key advisers will generate better solutions for you, your family and your business.
EDITOR'S NOTE: Lance Woodbury writes family business columns for both DTN and our sister magazine, "The Progressive Farmer." He is a Garden City, Kansas, author, consultant and professional mediator with more than 20 years of experience specializing in agriculture and closely-held businesses. Join Lance for a Q+A on this column at our Minding Ag's Business blog.
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