Kevin Spafford author of Legacy By Design: Succession Planning for Agribusiness Owner shares his philosophy
The numbers 70, 90, and 96 represent the historical success and failures in transitioning farms. Seventy percent will not transition from the first to second generation. Of the 30 percent that survive, 90 percent will not go to a third. Of the meager few remaining, 96 percent will not go to a forth, according to Kevin Spafford, author of Legacy By Design: Succession Planning for Agribusiness Owner.
“Most families struggle with succession. Planning for a smooth ownership transition, financial security and equitable distributions can confuse and overwhelm even the most well intended family leaders. However, using the right planning process, proven tools and effective methods, a family may plan success and enjoy life,” said Spafford.
“There are three very clear reasons why people fail in succession,” added Spafford. “First, incompatible estate planning can undermine even the best of intentions. Second, most people don’t set aside money or have the capital necessary to weather a succession planning event. The community has a failure for preparing the next generation for leadership in rural areas. If I can solve these three concerns, I can help farmers and ranchers plan for a better future and realize their dreams.”
Yet, there are huge challenges facing today’s food producers including: tax laws, technology, regulations, land values, family dynamics, special interests, social demands, foreign substitutes and increasing input costs.
“A succession plan can’t wait; it isn’t that difficult,” he said. “It’s designed to help you, your family and the farm. A comprehensive plan helps to design a smooth transition of ownership, a sense of financial security for the future, the development of leadership skills necessary for the next generation and minimizes any estate tax or transfer obligations.”
So, what gets in the way of having a conversation about transferring the ranch?
“Most families don’t talk; they don’t share their hopes and dreams,” he said. “We will talk about the ball game, planting or holiday plans, but talking about the future is difficult. It can create conflict. It can be difficult to know where to start or who can help? Often, families think planning isn’t necessary.”
According to Spafford, there are five keys to preserving the farm and passing a successful farming operation to a well-prepared next generation. The five keys to planning success include: good communication, common objectives, ready for succession, proven planning process, and commitment to action.
On good communication and common objectives, start with a family meeting. “For most families, 97 percent of everything they own is tied up in the farm, so this makes successfully passing on the farm extremely important. Learn to communicate without bringing up the past. Decide if the primary owner will make the decisions, or if it will go to a vote. Goals everyone can agree on are improving the operational integrity of the business, enhancing the family’s financial security and preparing the next generation to lead.”
On readiness for succession, ask yourselves a few questions.
“Do we have a viable operation? Can we establish good communication? Does the family share succession intentions? Can we discuss and establish equitable distributions for active and inactive children? Are children prepared for leadership responsibilities? Can the operation provide financial security to the retiring generation? Does the retiring generation have other interests, new vocations or a next phase in their professional life? It’s critically important to work through these questions as you go through the process,” stressed Spafford.
On the planning process and committing to that plan, he recommended, “If we can follow a common planning process, we can make sure to address the issues as you go through the conversation.”
Six steps for successful planning include: a family meeting, discovering goals of the operation, having the preliminary conversation about who will play what roles in the future, creating a final plan, implementing that plan and reviewing that plan annually. This will assist in achieving financial security, leadership development, ownership transition and estate tax provisions.
Don’t become a statistic. Make plans to sustain your operation through the generations. Spafford believes striking up the conversation and developing a plan can save many family ranches. For more information on succession and transition planning, contact Spafford at www. legacy-by-design.com.