Five questions to ask during succession planning
Answering these inquires can make the process smoother
By Diego Flammini
Assistant Editor, North American Content
Succession planning can be an important and sensitive part of any farm operation, but acknowledging succession planning can be a crucial step in the whole process, according to Scott vanEngen, a financial planning specialist with RBC.
“One day you will likely sell,” vanEngen said during a webinar on the subject of succession planning.
He separated sales into two categories: voluntary and involuntary.
Voluntary sales mean farmers are in control, he said.
“These are my assets and what I want to do with them in the future.”
And involuntary sales mean the circumstances, including zoning bylaws, farm failures and health reasons, are out of the farmer’s control.
When succession planning, it’s also important to know who the assets will be transferred to, vanEngen said, outlining three common forms of farm sales.
First, a family transition means the selling party likely still wants to maintain an active role in the operation and may be reliant on the business for income.
Second, a non-family transition means the seller is likely reliant on the success of the operation but finds it’s easier to be away from the farm.
Finally, a third-party transaction could mean the seller wants to completely walk away from the farm or transition from a farm management role to an investment management role.
VanEngen provided a list of five questions for farm business owners to consider to get a better understanding of their succession plan needs.
1) How do you own your business? – Based on how the farm is owned (sole owner, incorporated, etc.), there could be different tax implications and planning opportunities.
2) Do you know what your business is worth? – Having a good estimate is key. Is it time to sell? Do you need to refinance to access cash for retirement/expansion?
3) What happens if there’s an unexpected tragedy? – Farmers should identify key leaders/potential successors. Having updated wills (less than five-years old) and powers of attorney can make sudden successions easier.
4) Have you considered your exit options? – What exactly do you want? What possible timing do you need? Do you know the amount of money you need from the business to retire? Do you need to enhance to value of the business before selling?
5) What does retirement look like? – How much income do you need and what’s the source of that income? Having a financial plan can help farmers scope out their potential needs.
The first step so a successful transition is contacting the key people in a farm business team, vanEngen said.