Succession planning is a complicated undertaking for any family. Farm succession planning is unique because for many farms, family is intertwined in the business. The farm is the site of the business and the family home, where business meetings take place at the kitchen table and family roles are carried out to the field or barn.
In Wisconsin, 68 percent of farms do not succeed in transferring the farm business to the next generation. The financial and legal aspects of succession planning are complicated, but often lack of communication among family members delays progress, and puts the viability of the business at risk. This has implications for the family and business, for businesses that support farms and the future of Wisconsin’s agriculture industry.
Start on the same page
What can farm families do to avoid communication breakdowns and accomplish goals? In order to have productive discussions, first take time to evaluate where the farm is now. This includes a business inventory, financial analysis, production data, profitability trends and an idea of family living needs. You will be better prepared to meet with a financial planner or attorney if you gather this information ahead of time. This information will demonstrate what steps took place to get the business where it is today and put everyone on the same page with regard to the farm’s current status.
Farms often begin with a “testing phase”, where generations are working together. The successor most likely starts as an employee with compensation being wage-based. Its encouraged to have job descriptions with specific tasks and responsibilities in writing including compensation and vacation. It’s important that everyone understands and is comfortable with the agreement so these things do not become points of friction, causing tension for the relationship which may have otherwise gone well.
The length of the testing phase may depend upon the age of the owner generation, but more important is to be clear with regard to what is being evaluated during this phase; basing the timeline of management transfer on accomplishment of milestones. How well the two generations work together should be evaluated throughout this phase, as well as continued analysis of the farm’s financial capacity.
As this phase progresses, the successor’s income may be derived more from the success of the business than wage-based, so being able to measure the results of their work is important. Also consider that the best farmers may not be the best teachers. Therefore, a professional development plan should include other potential mentors or educational opportunities.
What succession means
Sometimes family members need to go through the testing phase in order to identify their vision for the business. Vision and core values influence everyday decisions but can be difficult to communicate.
Determining vision and values can reveal what the succession means to family members. For some it may mean specific management practices are continued as they always have been. For others, succession may be a continuation of the family name.
As farms move out of the testing phase, it’s important to think about how the next levels of management and ownership are transferred to the successor. How will the successor be allowed to provide input on decisions, and how will decisions ultimately be made? A decision-making framework should be established so all options and consequences are weighed. It is important that everyone’s input is analyzed on a level playing field.
Communication is difficult for a reason
For family farms, communicating decisions that affect the business is complicated by emotions.
The successor generation may want to make investments in the business while the older generation is becoming less willing to take risks. The owner generation may be concerned about fair treatment of off-farm heirs, while successor is not sure he/she will have enough to succeed, and is worried about being perceived as selfish.
A person’s vision and core values are embedded in emotions. Emotion, based in the limbic portion of the brain, “old brain” has served humans well throughout history with the ability to quickly recognize the unknown/fear; and determine fight or flight response. While language and higher thinking take place in the cerebral cortex, considered to be the new brain, evolving later, relatively speaking.
Communicating decisions, particularly when family is involved, requires a two-step process demanding two different parts of the brain to work together. First required is self-reflection in order to clearly understand the emotion behind the decision. High thought in the cerebral cortex is required next in order to construct the language needed to effectively communicate that emotion.
Farmers and many professionals study in the fields of their profession, mostly pertaining to production of crops, cows, etc. Few have the opportunity nor the time to further develop communication skills. Hence, assistance from a professional can help. Consult a trusted advisor and realize there are good reasons, including thousands of years of evolution, for why this is challenging for farm families in particular.
For more information on UW-Extension farm succession resources, go to: https://fyi.uwex.edu/farmsuccession/.