Ensuring Success for Future Generations - Agribusiness Succession Planning

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    • FNBO

      Commercial Banking
      Apr 15 2018

Ensuring Success for Future Generations & Agribusiness Succession Planning

Agriculture is more than a line of work. It’s a way of life with deep family roots. Of the 2.1 million farms in the United States, 97 percent are family-owned operations. Ag runs in families and more often than not, the next generation takes over the family business. Despite this, only 49 percent of farmers have identified a potential successor that will eventually manage the farm operation, according to a survey of Iowa farmers conducted by Farmers Weekly. Of the farmers who have identified a successor, 74 percent indicate one of their children will carry on the operation.

With the highest unified credit benefit we have seen in history, succession planning is at its most optimal point. Succession planning may be something you don’t want to think about, but having a plan in place can lead to peace of mind for everyone involved. Even if retirement is far off, it’s never too early to plan ahead.

Transitioning the operation to the next generation and giving up control isn’t always easy. Unforeseen issues, like divorce, lawsuits and family disagreements can weigh heavily on your mind and impede a transition of an operation due to uncertainty. Fortunately, transitioning the business doesn’t need to be an all at once process. Legal entities can be utilized to form a “sweat equity” buy-in or even a gifting scenario. This way the sweat equity is realized for the buy-in without actually handing over the keys. This type of transition can be done over time. Each year at a family meeting financials are evaluated, and if necessary, equity is passed in the form of units, as an LLC, or stock in the form of a farming corporation.

Succession planning requires communication, planning and patience. A fear that often comes with succession planning is potential strife between family members. However, having a succession plan that benefits all parties involved can ensure a harmonious transition. For example, we see many families where there is one child that is continuing the operation and the other children are not involved in the business. In these situations, a family meeting is utilized to discuss the goals and objectives of the succession plan to ensure a level playing field for everyone involved.

A key step in succession planning is having clear goals for your retirement, for the business and for the next generation. Once you have a financial plan, goals will be decided on for the growth of the business, reduction in liabilities, or adding overall growth to the equity position directly related to adding value for the next generation. Typically, the land is the retirement plan. Having a financial plan for retirement can help you get a baseline of the cash flow and profitability of the farm to support possibly multiple generations from the same acres.

In addition to having a solid financial plan, you can never start coaching the next generation soon enough when it comes to the financial health of the business. Have your successor sit in on meetings with bank management staff and those that are involved in daily operations of the business so they can establish a relationship. That way it is understood what the value of a bushel of grain is worth or a new calf, for example.

Last but not least, remember that planning is a team effort between the planning coordinator, lenders, attorneys, accountants, trust officers, wealth managers, relationship managers and farm managers. Our goal is to get everyone on the same page for the overall success of the family.

When planning the future of your agribusiness, work with a bank that understands your family’s circumstances and needs. We often say First National Bank is a great big small bank, and our employees have the depth of service and expertise that can help make succession planning a smooth process.

First National Bank is proud to have been serving agribusiness since 1857. Our knowledge and experience allows us to offer innovative agribusiness and finance solutions, whether your business is beef, pork, grain, ag-supply, processing or any other facet of the industry. Learn more about our agribusiness financing services.

The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.