Farm

1
Farm Business Succession Planning

• Dr. Alex White
• Agricultural Applied Economics
• Virginia Tech
• moneyguy_at_vt.edu
• 540-231-3132

2
What are we talking about?

• Successfully moving a business from one set of
  owners/managers to another
• Next generation, skip a generation
• Same generation
• Non-family
• Changing ownership management responsibilities

3
Family Business Transition Planning

• POISON
• Procrastination
• Overlooked
• Ignored
• Shunned
• Out-of-Date
• Neglected

4
Main Points

• Goals needs
• Communication
• Evaluate current state of business
• Living needs
• Estate planning tax management
• Develop a structured process
• Timeline, written job descriptions, etc.

5
Keys for Successful Transition

• Start early
• Clearly establish goals objectives
• Farm, family, personal
• Different for each generation!
• Differences in goals?
• Older generation
• Less risk, no dramatic change, continuity, scale
  back of effort, retirement (semi- or full)
• Younger generation
• Expansion, new technology, responsibility, time
  away from farm

6
Keys, Part 2

• Communication among all parties
• Main reason for failure!
• Think about using a neutral party
• VCE series on intra-family communication?!!
• Be candid in your evaluation of the business
• Remove the emotions
• Resource inventory
• Business/Financial analysis
• Would you want to buy this business?

7
Son of Keys

• Consider the living needs of all parties
• US Average 42,000 pre-tax
• Older generation retirement income?
• Younger generation full-time, part-time,
  non-business
• Farms 250,000/year gross with no non-farm
  income
• Living budget
• Daily expense tracker
• Retirement planning worksheet
• Portfolio duration calculator

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How Long Will 600,000 Last?
Cell values indicate the number of years your
portfolio will last.
9
How Long Can I Live on 50,000?
Cell values indicate the number of years your
portfolio will last.
Ignores any other sources of income
10
Return of Keys

• No offense, Jesse, but
• Estate planning tax management are easy!
• As long as youve done the preliminary work!!
• Treat the family business as a business
• Written job descriptions/duties
• Proper legal organization (S-corp, C-corp, LLC)
• Timeline for transition of ownership management
• Doesnt have to be overnight, unless.

11
Some Tips for Success

• Kick out the next generation!
• At least for a year or so
• Phase in the next generation gradually
• Responsibility and ownership
• Older generation must allow successor to grow and
  manage
• Often a stumbling block!

12
Get Professional Help

• Attorney
• Lender
• Accountant
• Financial planners (CFP, PFA)
• Farm consultants
• Facilitator
• VCE agents

13
Look for Help

• Local government and agencies
• State and national agencies
• Tax benefits
• Zoning
• Tourism

14
Potential Resources

• Virginia Tech, VSU, etc.
• VCE and MCE
• VDACS
• VFBF
• Lenders
• What can we do to help?
• What would make transition planning easier?

15
Transition Top 10 Checklist

• 1. Develop goals, objectives
• Provides direction
• 2. Start estate planning early
• Power of Attorney, AMD/Living Will, titling
• 3. Business organization
• S-corp, C-corp, LLC, etc.
• 4. Get rid of the successor
• For a while
• 5. Written job descriptions/duties

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Top 10 Cont.

• 6. Develop a timeline for phase-in/out
• Probationary period
• 7. Team approach
• Get everyone involved, including professionals
• 8. Local assistance
• Never turn down help!
• 9. Allow the successor to grow
• Swallow your egos, train, mentor
• 10. Communicate, communicate, communicate