7 steps for preparing your kids for the financial realities of ranching7 steps for preparing your kids for the financial realities of ranching
Train the next generation to handle the financial responsibilities of production agriculture with these seven tips.
November 15, 2018
I celebrated my 31st birthday this week, and just as my peers are griping about being “old” as we say goodbye to our 20s, in agriculture, I’m often seen as “still just a kid.”
In no other industry does the transition of assets, management and ownership take place later than it does in agriculture. Ranchers in their 60s, 70s and 80s are still working in the business with no plans to stop until their health fails them or their funeral dates are set on the calendar.
This leaves the next generation in an interesting limbo, particularly if no clearly communicated succession plan is in place.
Do we leave to pursue other occupations until the leadership role is available? Do we stay and play “hired man” for several decades without a guarantee of a successful transition? Do we ranch separately, creating our own path to success independently but adjacent to our folks and then acquire those assets to expand our business upon their retirement?
And what about our children? How do we guarantee their path to production agriculture if we aren’t sure of our own paths? When our chapters are still being written in our 40s, 50s and beyond, our children will start having questions as well, but will we be able to give them answers?
These are just a few of the many questions millennial producers ask themselves as they wait to see where the chips may fall in their multi-generational family operations.
Yet, it doesn’t have to be this way. Often I see owner-operators withholding plans for the future because the “what-ifs” are still unknown.
They don’t want to over-promise or over-sell the opportunity, so they push it off. Then they wonder where the next generation has gone as their children move elsewhere to pursue a career with a more guaranteed path to success.
I’ve also seen the opposite play out. Promise too much too early, and the young person may feel entitled or siblings may start to feel animosity toward one another. Perhaps the next generation doesn’t have any outside work experience, and they jumped into the business straight out of high school or college.
The challenge of adding another family for the ranch to support can be too much for some operations. For example, if the next generation doesn’t bring in additional revenue streams by diversifying or expanding, it’s a recipe for disaster for all involved. This often results in the older generation mortgaging their future retirement plans to subsidize the next generation coming in.
So what’s the secret to success for those families who are transitioning their operations while also still having a harmonious family unit?
Gwen Paddock, for the CountryGuide, says it’s critical that families teach their kids about the financial realities of farm ownership.
Paddock offers seven tips for training successors early to ensure that they have the passion, skill set, drive and experiences needed to handle the financial obligations of production agriculture.
1. Write up a business plan.
Paddock writes, “It is not enough to tell the next generation “work hard and this will all be yours.” At the end of the day, a promise is not a contract. Unless you have something in writing, you don’t have a good business plan.”
2. Start introducing them to people who matter.
She says, “Beyond working in the field, they need to get a clearer picture of all aspects of running the business. You can start by including them in your meetings with bankers, accountants and lawyers.”
3. Communicate constantly.
“Make sure that everyone’s thoughts are captured and that decisions are shared,” says Paddock. “This sounds easy, but our experience has shown this is one of the most difficult parts of succession planning.”
4. Clarify job descriptions and assess skills gaps.
She adds, “Sometimes attention is paid to the transfer of assets at the expense of transferring decision-making and management. When the kids are younger, there is still time to close that skills gap well ahead of the transfer. Take the time to consider what management skills they have — or lack — and start planning how they can acquire them.”
5. Make them aware of the risks and challenges.
“While they may have some great progressive ideas, they may not be fully aware of the challenges inherent in them,” she says. “A financial adviser can help present different scenarios and their potential impact so the successor is well educated on the consequences.”
6. Send your successor out into the world.
“This may seem counterintuitive, but spending time in another operation or profession — or simply traveling the world — will give them a better perspective on their future ambitions and help them acquire additional skills,” says Paddock. “Not only will they come back with new ideas, they will have had the time to consider how committed they are to taking over the business well before you make the final transition.”
7. Fair is not equal.
“You need to take the time to understand each of your family members’ goals, their contributions, and whether they are the right fit for your operation,” she explains. “If one or more of your children decide not to be engaged in the business, what kind of agreements do you have in place to ensure a fair division of equity?”
There are no guarantees in production agriculture, and the next generation needs to focus on obtaining the proper skill sets and experiences to be suitable successors. That being said, young people should not enter production agriculture with rose-colored glasses.
Nor should the owning generation leave their kids in the dark about their plans for the future and/or over-sell and under-deliver what the farm/ranch has to offer.
Clear communication and concrete exposure to every aspect of the business should be a primary focus for farming and ranching families.
The opinions of Amanda Radke are not necessarily those of beefmagazine.com or Farm Progress.
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