MSU Extension

You’ve just had a conversation with your son or daughter, or your mother or father and you managed to touch on the tractor that needs repaired, how the calves look going into fall and switching a vaccine, those everyday things that have to be done for you to get your product to market. What didn’t pop up in the casual conversation were topics pertaining to transitioning business decisions and ownership of the farm to the next generation. So often we get caught up in day-to-day operations and do not put time and effort into longer term planning required for a smooth, successful farm transition. Planning for the next generation to take control of the operation is not a short process, but it is doable. A key component of this process is communication within the family.

As with many situations, communication is key in determining solutions that are well thought out, planned and executed. It is no different in the case of transitioning the farm from one generation to the next. Being able to communicate the needs and desires of both generations is extremely significant to the success of a transition. What is even more important is intentional communication, meaning the family as a team is making a point to sit down and figure out the process.

The right kind of communication can be a struggle even for the closest of families and often times a catalyst is needed to get the process rolling. A mobile app called Inspired Questions for Farmers developed by David Specht, a family-business consultant, and founder of Advising Generations LLC, provides a great platform for getting families communicating in the right direction. It is key that your family’s communication voices the thoughts and concerns of those involved and accomplishes the tasks that you define.

With your base of solid communication principles in place it is time to put pen to paper and work through the nuts and bolts of transitioning. To start the transition process a checklist of “to do’s” is essential. The Farm Information Resource Management team with Michigan State University Extension has many resources, including a Farm Business Transition Planning Checklist. Some of the topics from that list include:

1. Know what you have and understand how you are using it
2. Evaluate past, present and future financial performance
3. Put in place tactical strategies for transfer execution

Knowing what you have and understanding how it is used includes establishing goals that address a defined mission and vision. Defining goals, a mission and a vision is a step towards everyone being on the same page and understanding what your operation is striving for. It is also important to document the current and expected changes for business management including how labor is divided. Assigning who will be taking over what roles and responsibilities is important for identifying each person’s place in the operation. During this portion of planning it is also important that all wills and/or trusts are current for family members. Being prepared for the unthinkable is a type of insurance you may grumble about having to pay for, but the peace of mind is worth the time and effort. These tasks all contribute to how roles on the farm will be changing from one generation to the next.

Evaluating past, present and future financial performance mainly includes that of the business, but personal financial requirements must also be discussed. As the senior generation retires, what will their needs be and what can the younger generation expect as they take on more responsibility? You have to have a solid understanding of where the business has been financially and a good idea of where it is headed. Doing so will allow you to identify the financial performance strengths and weaknesses of the operation. One question to be answered is whether the operation can support the needs of the exiting generation and the entering generation. If the answer is no, how will you grow the operation to accomplish your transition goals?

Putting in place tactical strategies for executing the transfer is having the knowledge at hand and knowing what actions to take. Actionable steps need to be identified for the transfer of management of the operation. These include a gradual or rapid exit for the senior partner, taking on new junior partners and transfer of ownership. This is the time to review and modify the business arrangement such as an LLC or Corporation. This plan for transferring the farm should not be set in stone but as the operation changes the plan should be reviewed and updated to reflect those changes.

Being able to transition the farm to the next generation should come with a certain level of pride and sense of accomplishment, as another generation is able to carry on the family business. For more in-depth information on farm transition and succession you can discuss your situation with your area farm business management educator.