Dr. Alex White, Virginia Tech Dairy Science
I speak to a lot of groups about a lot of topics. These days, the most common topic that agricultural groups ask me to address is transition planning—how can/should they bring the next generation into the farm business? Transition planning is a process for determining how to transfer ownership of assets and management responsibilities to the next generation. It’s one of those topics that most families know is crucial for the future of the family, but they just never get around to doing it. I don’t need to remind you of the reasons why, but I will.
Most of us get serious about transition planning when someone in the community passes away. We all see the negative impacts on that person’s family and/or business, and we say, “I won’t let that happen to my family.” We promise ourselves that we’ll start planning for our future. Heck, we even go to an Extension office to learn how to make the transition more successful. Then we get home to find out that cow #7 is in the wrong pen or the skid loader is leaking hydraulic oil, and that takes immediate precedence over transition planning. Next thing you know, transition planning is out of sight, out of mind, again. Because, you know, in the big picture, moving a cow is much more important than taking time to talk with your family about the future…
Hopefully, that sarcastic comment struck a nerve with you. Hopefully, it gets you to think about starting the transition planning process. Then your mind starts to cloud over with thoughts of lawyers and accountants and LLCs and estate taxes. “My gosh, this is too complicated. I can’t stand the thought of wading through that rat’s nest. Maybe I’ll just hire someone to develop a transition plan for us.” Guess what? All of these legal and tax issues are the easy part of transition planning. The complicated part is sitting down with your family and having open, honest discussions about everyone’s goals and concerns. Family communication (or the lack of) is by far and away the biggest stumbling block in transition planning.
“What do you mean by that? We’re family. There’s nothing wrong with our communication. We all know what everyone wants.” Like I said, the lack of family communication is the biggest hurdle. You know the rest of the story.
Someone in the family finally works up the courage to say, “Let’s have a family meeting to discuss our future.” In the awkward silence that follows, someone says, “I have more important things to do right now” —those things typically include vaccinating calves, fixing the tractor, or talking to the lender.
Granted, those things are important and need to be done, but are they more important than developing a plan that will help your farm and family grow and prosper into the future? Might it be worth a few hours per month to work on a plan that will help your family business continue to be successful for years to come?
Then comes the familiar statement, “Well, we don’t have to do it this minute. We have plenty of time to develop a plan.” That’s what the father of one of my students said, about two months before he passed away, unexpectedly. That’s what the grandfather of one of my students said for about three years—just long enough for my student to get frustrated and get a full-time job away from the farm. That’s what five siblings said after they inherited the family farm from their mother—and then three of the siblings decided they were going to sell their acreage (which happened to be in the middle of the farm) because they needed cash—all of a sudden the remaining two siblings who wanted to farm couldn’t. And, worse yet, all of these families were torn apart because at least one party thought there was plenty of time to start the planning process.
"only 30% of family businesses successfully make the transition from the first generation to the second"
According to the Family Business Institute,only 30 percent of family businesses successfully make the transition from the first generation to the second generation; roughly 12 percent make it to the third generation; 4 percent make it to the fourth generation. And, in most cases, the failure is voluntary.
The conscious (or subconscious) choice to not develop your transition plans and share them with your family is the main problem. Most family businesses can have a good chance of succeeding into the future if they would just take time to develop plans for the transition.
I know what you’re thinking: “Alright, Mr. Know It All, how do we start?” The simple answer is start the conversation about the future of your family farm today. Start small and don’t think you can address all of the issues in one day. It’s like my father used to say, “You want to know how to eat an elephant? Simple: do it one bite at a time.”
Dr. Alex White has taught a wide variety of college courses at Ohio State, NC State, Ferrum College, and Virginia Tech for the past 25 years. The courses he has taught include ag financial management, farm management, small business management, and several courses in personal financial management. He has served as an extension agent and an extension specialist (personal/ farm financial management) for Virginia Cooperative Extension and has worked with Farm Credit in a variety of ways for the past nine years. He is also a Farm Credit customer.