Some time in the future, your farm or small business will be transferred to a new owner. You may have a time frame in mind, or you could be forced to sell because of a change in health or other circumstances. At any rate, if you’re looking at selling your farm or small business, there are some things to keep in mind to increase the chances of a good outcome.
For example, there are ways to minimize the chances of a crisis if the cause is health-related. Additionally, there are other considerations to think about to ensure an organized, structured transfer of ownership to the next generation or third party.
Regardless of who ends up with the farm or small business, it’s vital to take steps beforehand to plan the process. Developing an escape plan is a relatively small up-front investment in time, but it could save you a lot of grief and thousands of dollars in taxes at the time of sale.
The biggest hurdles to the transition process are usually the emotional issues rather than the mechanics of the process. Following is a list of questions to ask yourself, to help assess if you’re ready and willing to start into this process with these in no particular order.
- Are your wills current, and are you willing to disclose the contents to your children?
- Are you willing to transfer your farm or business to the next generation?
- Are you willing to transfer management of your farm or business to them?
- Do you plan to retire or just want to wait until forced to by injury or ill health?
- Have you and your spouse talked about your retirement plans?
- Do you know where you’re going to live and what it will cost when you’re retired?
- Will you have enough funds from sale proceeds and other sources to fund retirement?
- Have you analyzed what the fair treatment of your children would be?
- Have you analyzed how the business, farm or other assets would be distributed?
- Are all agreements formalized and written down with a lawyer’s involvement?
- Has any potential successor spent any time away from the farm or business?
- Are you willing to share the decision making powers with a successor?
- Has the successor seen the financial statements and business history?
- Will the farm or business provide enough future growth to offset inflation?
- Does the successor understand their work load and what’s expected of them?
- Does your family communicate openly and freely with little conflict?
- Are the founder and successor’s goals and dreams for the farm aligned?
- Do you have a business plan and is it written down?
- Do you have qualified consultants and advisors on hand?
- Are you ready and willing to commit the time to complete a succession plan?
- If you are not ready to address these questions now, then when will you be?
As you can see, there are a host of emotional issues that need to be worked through in any sale or succession plan, all of which require open communication and the good will of the parties involved. A comment that I often hear is, “We started into this process and gave up, as it just became too difficult to deal with.” That’s why you need a trusted advisor to act as a quarterback to help keep all the people involved and on track. Without a plan, people end up assuming what’s going to happen, and usually end up bitter and disillusioned, then the fighting begins.
My barometer of a successfully completed succession plan is when all the family can sit down and enjoy an Easter, birthday, Thanksgiving, or Christmas meal together.
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