Every person who is in business has a goal to be successful in financial terms, but at some point they will need to answer what (or who) is it all for. Who will be their successor when they retire or pass on from life on this earth? Is good succession a measure of success?
As farm business owners we often have a relatively high net worth and from time to time we might feel pretty successful. Some people say there is no money in farming but this is actually not true. There is plenty of money in farming. You just can’t get any of it out. I am sure that you cannot take it with you when you die either. So how can we be successful in succession?
Succession planning is not a one-size-fits-all discussion but rather every person or perhaps every family must find a custom-tailored solution that is just the right fit for them. For some it may be passing the farm on to their children. For others without a family member interested in taking over the business, transitioning the business over to one or more of their employees may be a good option. For others it is simply a matter of selling the business on the open market either as a going concern or simply through the sale of the assets. These are all valid options for farm or business succession.
My brother and I are now the third generation running our family farm so I have some first-hand experience at how this can work. I am extremely thankful that our father saw the value in allowing us to become part of the farm business at a relatively young age allowing us to grow into the business as it grew and to share in its profits in a very timely manner. I am sure that Dad is also happy that there was someone to take over the responsibility and headaches of running the farm, allowing him to back out of the business at a comfortable pace for him as well as us.
Without going into details I will say that our arrangement was one that found a balance between paying a reasonable amount for our piece of the farm while leaving Dad and Mom enough to retire comfortably and us with payments that we could manage while still growing the business. I am thankful because I know that if we had to go to the bank and borrow the full value of the farm we would not be able to make the payments. I am also thankful that we were able to begin this process at a young age and participate in the growth of the business. Our parents were happy too because they were able to slowly hand over responsibilities and ease into retirement at a pace they were comfortable with. Our family has been successful at succession so far.
With eight children between my brother and me, with one of them working full time on the farm, already it is likely that there will be a successor or successors coming up. The challenge now is that the farm has grown significantly in terms of the cost of building it up. It would be difficult to sell the farm at its book value to our children expecting them to borrow the funds for the purchase. Borrowing that much money would put them in a very precarious position as margins are currently far lower than what would be required to service that kind of debt. Another option would be to retain ownership till death and have some life insurance to offset the taxes allowing them to carry on the business. We will need to consider what advantage should be given to those who choose to make the farm their life’s work as opposed to making a career in some other profession. We will need to make an incentive for the next generation to grow the farm and to keep it sustainable. They need to benefit themselves as they take on more and more responsibility in the business. We certainly must work with accounting and legal professionals to find solutions that work within tax laws. We must ensure that the tax burden on either of our deaths does not cripple our successors. My brother and I will also need to maintain some kind of income from the farm as we grow older.
Children who do not participate in the farm should not be neglected, nor should they receive an inheritance equal to their siblings who have made the family business their life’s work. Our farm’s viability hinges on all of the pieces working together as one unit. This is certainly a delicate balance especially since we do not know the number of our days. How does one plan for the wide variety of possible outcomes and unknown timelines?
As the average age of farmers in Ontario becomes more and more senior we all need to think about how we can encourage someone to continue on the work that we have made our life’s passion. We need to somehow encourage and incentivize successors to take the torch from us and continue the honourable work of food production. We need to give them the opportunity to succeed.