Farm succession can take many forms — a new generation of the family taking ownership, selling to a third party, expanding or starting a new line of business — but whatever form it takes, it represents a major transition in the life of any agricultural business.
Steve Kluemper, president of AgriStrategies, an agricultural consulting firm in East Lansing, Michigan, talked about farm succession during the Great Lakes Fruit, Vegetable and Farm Market EXPO in Grand Rapids, Michigan, in December.
Kluemper, who’s spent 30 years working with producers, processors, suppliers and co-ops across the country, helps guide farms and agribusinesses through major financial decisions. He told Good Fruit Grower that a successful farm succession plan must start with a successful business. A successful business includes short- and long-range business plans and robust decision-making processes backed up by solid data, he said.
Some producers, such as fruit growers and livestock farmers, have long-term investments they must take into account during a transition, which means they may not have quite as much flexibility as producers of annual crops. But in the farm succession process, all ag-related businesses face the same basic challenges, he said.
Every transition must meet the needs of all stakeholders. Farm succession plans are more likely to fail when they are rushed and don’t allow sufficient time for everyone to fully understand the situation, which makes transparency crucial in every step of the process. You can’t avoid the “elephant in the room,” Kluemper said.
In the common scenario of a multigenerational farm succession plan, he said, the first, and usually the hardest, step: getting all the relevant parties to sit around a table and start talking to each other.
Much depends on family dynamics. Some families have an easier time establishing a common goal both generations can buy into. For others, that process is harder, he said.
“Maybe Dad wants to transition it to his kids the same way his parents transitioned it to him,” Kluemper said. “But that might not meet the goals of the buyer or seller because things have changed.”
Once everybody around the table better understands each other’s needs and challenges, they then can bring in outside professionals — lawyers, accountants, investment professionals, financial consultants — to help find solutions that work for all parties.
“You want to do it in the most tax-efficient way you can, and make sure it gets done right from a legal perspective,” Kluemper said.
Whether selling to an outside party or the next generation, the owner should make sure the business is living up to its full potential. Kluemper compared it to selling a house.
“You want to stage it, and make sure you address all the things that can turn a buyer off,” he said. “One person’s exit plan is another person’s investment.”
When “staging” a business, the most crucial factor to address is the management team, he said. Will the buyer be acquiring a management team that will lead the business to success, or will they need to provide their own management team, thus reducing what they’re willing to pay for the business? The seller needs to ensure the right people are running the right departments and that they have the time and resources to do their jobs, he said.
Potential buyers consider other factors, too, including real and perceived risks, the business’ resources and competitive strengths, and its ability to generate attractive returns, Kluemper said.
—by Matt Milkovich