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Keeping your farm going day to day may leave little time to consider big-picture issues. Major decisions — such as choosing the person you’ll turn the operation over to when your farming days are done — are sometimes placed on indefinite hold. Of course, this particular decision can be a difficult and sensitive one, which may explain why 73% of farmers (including nearly half of farmers over 80!) have yet to name a successor, according to an Iowa State University study: “Iowa Farmers Business and Transfer Plans.”
Whatever your age, having a clear succession plan in place can help make the transition process smoother and less complex, plus ease concerns as you approach retirement. Focusing on these four areas can help you set a smart succession plan in motion:
Your team of advisors
It’s important (and comforting) to realize that you don’t have to go it alone. A team of experts — including your attorney, accountant, insurance advisor, investment advisor and agricultural banker — can help you plan ahead for a smooth transfer and ensure you don’t overlook key steps. One of these experts can act as lead, organizing meetings and ensuring the team shares relevant information. A financial appraiser also can play a key role, giving you a clear picture of your farm’s value (see For What It’s Worth).
Your pool of candidates
As you think about potential successors, you’ll obviously want to groom someone who has the same interest in, and passion for, farming as you do. But this person also will need other skills, such as the ability to manage people and make business decisions. Don’t overlook the number of people it takes to run your operation. If you and a spouse, sibling, or other family member or business partner have put all of your combined time into the farm, designate a comparable number of successors.
Your plan for sharing the decision
Once you’ve settled on a successor or team of successors, make sure that all of your family members, longtime employees and other key stakeholders are aware of your intentions. This will leave you plenty of time to train new leaders for their roles and help prevent any unpleasant surprises for those who might have expected a more senior position.
Your retirement income
Whatever your succession plans, factor in future sources of income. Beyond anticipated Social Security payments, you may be counting on the farm to provide retirement income. If so, consider how much money you can reasonably expect without impairing the farm’s ability to operate and prosper under its new manager.
For additional information, please see the PNC paper Succession Planning on the Family Farm.
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