Last week’s message was on the topic of communication. Communication is an important preliminary step in the succession planning process. With hope your family was able to put a couple of check marks on the Succession Planning Checklist. Just opening the lines of communication is a very big step.
The next step of collecting and analyzing information is a task that each family member should participate in. First, in order for all family members to be on the same page, each person must be informed about what a succession plan is – and what it is not. This might be as simple as doing an Internet search and finding short articles to read or even better, attend an Extension session on succession planning (Thursday evenings in August). Many Extension websites have documents to download as well as links to presentations or upcoming seminars on this very topic. It is not unusual for farm families to attend multiple succession planning workshops because of the nature of the topic and the time involved. Additional tasks involved with this step include locating and sharing a lot of important documents, for example financial statements, wills, insurance papers, tax returns, estate plans, farm deed, retirement savings, etc… Finally, when all the documents are shared, the family can begin to analyze the current situation of the farm.
Continuing with the example from last week: Mom and Dad have disclosed that they’d like to see the farm continue after they retire. They believe that in 10 years, they will be financially set to retire. After several weeks of group text chats, the family learned that Son 1, who currently works full-time on the farm and is married with twin girls, would very much like to be the successor. Son 2 who is also married would like to add an enterprise to the farm. He and his wife (also an ag teacher) have aspirations of using the farm as an outdoor classroom and agritourism operation. Son 3, age 25, is content with his industry job but had always thought he’d go back to the farm after gaining some experience off the farm.
The documents that were shared include the parents/farm tax returns for the past 5 years, income statements, balance sheets and cash flow statements for the same period. The current business plan was shared, too. The parents also shared their retirement plan and the financial goal that they hope to achieve within the next 10 years. The parents do have a will that states among other things, that their assets upon their death are to be equally divided among the three sons.
These are just a few of the many documents that will need to be shared in order to continue the succession planning process. This will likely take several days to gather all the documents. Once they are gathered and reviewed, it makes sense to reflect on what has been shared. Hasty decision making should be avoided. This is yet another reason to begin the succession planning process. Please review page 5 of Farm Succession Planning Checklist for a more detailed list of the documents that will aid you in preparing to analyze financial viability and profitability of your farms business. Is your farm profitable? How profitable? Does the farm have enough income to support another family?
Keep the communication going throughout. As mentioned above, it will take some time to gather all the documents. By gathering all these documents and sharing them with the all the parties involved, there is a level and trust and transparency established that can go a long way.