Farm Succession Planning: What’s Involved? John C. Becker Penn State University University Park PA
Succession planning is a mix of issues involving: • Financial planning • Family decision making • Business profitability and management • Family relationships
Succession planning is a key business function! • Transfer assets and business knowledge • Contrast with inheritance • Financial needs of all parties are addressed • Management development
Succession planning requires time • Adding a younger generation to the business • Meeting the younger person’s needs • Younger person gains knowledge and experience • Business control turned over to younger generation
Two key parts of the succession planning process are: • Increased decision making responsibility on the younger generation; • Demonstrated ability of the younger generation to run an enterprise
Routes to the successful transfer of a business include: • The Direct Route • Running their own operation • Indirect Route • Professional detours • Off-farm employment then return home • Partnerships, corporations, LLC’s and LLP’s
Lets not be afraid to discuss retirement • Transfer control of the farm to successor • Selling the assets • Giving up one aspect of the business • Full or partial retirement
Retirement of the current owner must be addressed • Address the older generation needs • What does retirement mean to the older generation? • How much planning has the older generation done regarding retirement?
2004 Survey of PA/NJ farmers shows: • 40% never plan to retire • 29% plan to semi-retire • 24% plan to fully retire • Age at retirement = 66 • About half plan to retire on the farm
Financing retirement involves several options • Results of 2004 survey shows: • Social Security (28%) • Investments (30%) • Private retirement plans (36%) • Income from this farm (22%) • Sale of land; Other assets (41%)
Have you had discussions about retirement? • 2004 Survey shows: • No retirement discussions with anyone (21%) • Discussed with family (31%) • Lawyer (9%) • Accountant (13%) • Farm Advisor (4%)
Have you considered who your successor will be? • 2004 Survey results show: • 32% have identified a successor • Generally a child • 5% are daughters • Average age of successor is 31 • Successor generally working off farm
Where is your potential successor “the succession ladder”? • Bottom rung: Allow the successor to make technical decisions: what to feed, which fertilizer to apply; livestock management • To make strategic planning decisions: mix of enterprises, labor related decisions. • To make financial decisions: sales, loans, financing • Top rung: Deciding when to pay bills.
CES programming is aimed at helping audiences • Understand what is involved in the process; • Seek appropriate help before making key decisions; • Make decisions when the timing is right • Monitor the progress of the plan • Enjoy your retirement!
Succession planning will be accomplished when: • All parties have compatible goals • Business and Personal challenges are addressed • The business remains profitable • Both generations improve management skill • Both generations are willing to make the plan work
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