Farm Succession Planning: The Most Important Conversation You Need To Have

farm succession planning If you are a farm owner, no matter who you are, one day you will sell your business. Whether it is voluntarily or involuntarily, a sale will eventually occur. The important question is, do you know who is going to buy it?

Farm succession planning is extremely important, yet it is very common that these critical conversations just simply never occur.  We have many clients in the agriculture industry that often own one or more agricultural assets including wineries & vineyards, orchards, general agriculture & farmland, etc. and they too struggle with having this most important conversation around succession planning.

The Best Option Is Right Under Your Nose

A number of years ago one of our clients decided to sell. His son had been working in the business since he was a kid, right through university and continued working in the business as his right hand man with a few other key employees.

The business had been extremely successful and one day they received a call from one of their main vendors that wanted to purchase their business.  The owner hadn’t really thought a lot about retirement but when he got this random phone call with a great offer, he had decided that he wanted to take it.

The client came in to meet with us and told us he had decided to sell to the vendor and wanted our help to understand the tax consequences and to assist him in structuring the sale.

We asked him, “What about your son?”

“Oh, well he’ll just keep working there.”

“No, what about having him buying it?”

There Are More Options Than You RealizeID-10078117

Of course he thought that there was no way his son would be able to afford to purchase the business so he hadn’t really considered this option.  In fact, we were able to structure the sale so that his son and daughter were able to purchase the business for the same price as the vendor had offered.

The deal included a buyout over three years with not only a great structure to get dad paid back while doing it for the exactly same price but also it led to a very successful business being retained by family members.

Retaining the business in the family doesn’t always work out or make the most sense but, in this case, everyone finished happy … that is … except for the vendor!  Had dad gone ahead and sold the business to someone else, without at least first having the succession planning conversation with his son, their entire family may have missed out on the opportunity of a lifetime – to successfully transition a business between generations.

Having A Conversation Is The 1st Step

This discussion about farm succession planning originally came up because we do a lot of work here locally with wineries and a lot of the transitional issues with wineries are similar with any other type of farmer. No matter what type of business you operate inside the agriculture industry you must decide if you’re going to sell inside the family or outside.Screen Shot 2013-10-10 at 2.52.05 PM

In both cases you have some very valuable land that you’re dealing with and sometimes that land has been in the family for many years, other times it hasn’t been there long so maybe it’s not necessarily the driving force of the issues.

A Helpful Tool To Guide The Process

There is an excellent tool from the Agricultural Management Institute website that guides farm owners through the process of farm succession planning and the multiple possible scenarios. It very easily applies to owners of wineries, orchards or any other form of agricultural business.

Most of the website deals with knowing when to have the conversation with your advisers, family members or next-generation owners so that you’re not forced to sell if the owners die.  The goal is to set your business up for a smooth transition, whichever path you take. There’s a lot of information on the AMI about making sure that the choice is yours and how business succession happens.

The idea of this website is to get you through the information gathering stage so you can be prepared to have a productive discussion with your advisor. If you do own some form of agricultural business in BC, then I highly suggest you take a look at the link below, especially if you haven’t thought of what’s going to happen when you decide to sell. Succession planning helps you establish a long-term plan to get the wheels in motion so that you always have options.

ACCESS THE FARM SUCCESSION TOOL NOW

There Are More Options Than You Think

The AMI Farm Succession Planning tool really drives you to having those conversations and although it is primarily farm-based, you can really read through it in terms of any business context.

A lot of times we find that the first generation parents feel that they know exactly what everybody wants.  This is typically not the case as usually that they have never had the conversations about farm succession planning. Sometimes it’s the other way around and the parents think their children are going to take over when dad retires but they want to move on to something else. Both situations can lead to expensive and stressful consequences but have a simple solution: have the conversation.
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