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Building A Roadmap To Farm Succession

Many farmers we talk to want to get started creating a succession plan, but nearly all just don’t know where to start. Often emotions and feelings complicate an already complex task. When working with clients we generally follow a four step approach. We recently met with Neber Leben DeFarm and his son Angus Anxious DeFarm. The DeFarm’s had been trying to generate a succession plan for many years, however discussions usually broke down into loud disagreements and hurt feelings.

We came in with a process that we typically follow. Family commitment to the process builds discipline and provides an opportunity to manage emotions and their impact on the succession plan. The process can be compared to a short road trip.

Check the oil in the truck. Where the hell are we going?

Are we taking gravel or the highway?

Fill up the truck and hit the road.

CHECKING THE OIL

Let’s look at each of these more closely.

We said to Neber and Angus that before the business can go anywhere we need to know it’s in good shape. If the truck is broken we better fix it before we get too far away from home. This involves financial statement analysis which includes a balance sheet, income statement, cash flow and ratio analysis. The benefits to Neber and Angus are that they now have a common understanding of the businesses strengths and risks. It’s important for everyone to see the dipstick not just the guy who will be driving.

WHERE THE HELL ARE WE GOING, ANYWAY?

This is the only step in the process where we find ourselves with no answers, only questions. The only wrong answer is no answer. In order to develop a succession plan it is crucial to know what success will look like for all parties. Goals discussed in this process involve lifestyle, financial goals and estate planning for both father and son. The clearer the idea of the end result the better the options can be in step three.

Think of it like this: if we say we are going to Saskatchewan, we are not likely to cross paths, but if we agree that we’re going to Kamsack, chances are we will meet on the main street.

ARE WE TAKING GRAVEL OR THE HIGHWAY?

This step involves generating different options to achieve the goals of all parties. In this section all options are fleshed out and advantages and disadvantages are determined. Each option usually presents different risks and challenges. Ultimately the right option will include risks and mitigating factors that are comfortable for all. Each option is like a different road to the same destination — each road will have its own sharp turns, open stretches and potholes.

FILL UP THE TRUCK AND HIT THE ROAD

Now that everyone knows the truck is running, where we going and what road we’re taking, it’s time for the rubber to hit the road. This step involves a detailed plan for the execution of the succession plan. It generally involves what needs to be done by when and by whom. This usually involves a time-line of when and which lawyers, accountants, financial planners, insurance agents and creditors will be contacted.

Neber and Angus recently finished this process and both indicated that they were extremely relieved. They had been struggling with this for years, saying that they just didn’t know where to start. Succession planning is a step by step process; one decision builds on another. The most important part of a succession plan is starting but that’s also the hardest part. If you are having trouble starting get some help with that part. This part may seem simple however it may be the largest single factor contributing to succession failure. If you talk to family members of farms that are sold many indicate nobody was interested in continuing the farm. In many cases, however, a succession plan just never got started.

AndrewDeRuyckandMarkSloanemanage twofarmingoperationsinsouthern ManitobaandarepartnersinRightChoice ManagementConsulting.Withover25years ofcumulativeexperience,theyoffersupport infarmmanagement,financialmanagement, strategicplanningandmediationservices. Theycanbereachedat [email protected] and [email protected] or204-825- 7392and204-825-8443

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