Farm Succession Planning: Farm Succession Planning: What’s Involved? What’s Involved?

John C. BeckerJohn C. Becker

Penn State University Penn State University

University Park PAUniversity Park PA

Succession planning is a Succession planning is a mix of issues involving:mix of issues involving:

►Financial planningFinancial planning►Family decision makingFamily decision making►Business profitability and managementBusiness profitability and management►Family relationshipsFamily relationships

Succession planning is a Succession planning is a key business function!key business function!

►Transfer assets and business Transfer assets and business knowledgeknowledge

►Contrast with inheritanceContrast with inheritance►Financial needs of all parties are Financial needs of all parties are

addressedaddressed►Management developmentManagement development

Succession planning Succession planning requires timerequires time

►Adding a younger generation to the Adding a younger generation to the businessbusiness

►Meeting the younger person’s needsMeeting the younger person’s needs►Younger person gains knowledge and Younger person gains knowledge and

experienceexperience►Business control turned over to Business control turned over to

younger generationyounger generation

Two key parts of the Two key parts of the succession planning process succession planning process

are:are:

► Increased decision making Increased decision making responsibility on the younger responsibility on the younger generation; generation;

►Demonstrated ability of the younger Demonstrated ability of the younger generation to run an enterprisegeneration to run an enterprise

Routes to the successful Routes to the successful transfer of a business transfer of a business

include:include:

►The Direct RouteThe Direct Route Running their own operationRunning their own operation

► Indirect RouteIndirect Route Professional detoursProfessional detours Off-farm employment then return homeOff-farm employment then return home

►Partnerships, corporations, LLC’s and Partnerships, corporations, LLC’s and LLP’sLLP’s

Lets not be afraid to Lets not be afraid to discuss retirementdiscuss retirement

►Transfer control of the farm to Transfer control of the farm to successorsuccessor

►Selling the assetsSelling the assets►Giving up one aspect of the businessGiving up one aspect of the business►Full or partial retirement Full or partial retirement

Retirement of the current Retirement of the current owner must be addressedowner must be addressed

►Address the older generation needsAddress the older generation needs►What does retirement mean to the What does retirement mean to the

older generation?older generation?►How much planning has the older How much planning has the older

generation done regarding retirement?generation done regarding retirement?

2004 Survey of PA/NJ 2004 Survey of PA/NJ farmers shows:farmers shows:

►40% never plan to retire40% never plan to retire►29% plan to semi-retire29% plan to semi-retire►24% plan to fully retire24% plan to fully retire

Age at retirement = 66Age at retirement = 66 About half plan to retire on the farmAbout half plan to retire on the farm

0

20

40

60

80

Percent

Figure 4.5-International Retirement Plan Comparison Will Retire

Semi-Retire

Never Retire

Will Retire 31.9 33.7 64.7 33.8 37.2 27.4 23.9 18.5 18 24 24

Semi-Retire 56 53.4 28.9 44 49.5 37.6 33.9 37.5 35 29 29

Nev er Retire 11 12.9 6.4 22.1 13.3 27.4 42.1 44.5 47 40 40

Australia England France Ontario Quebec Iowa VA Japan NC NJ PA

Financing retirement Financing retirement involves several involves several

optionsoptions

►Results of 2004 survey shows:Results of 2004 survey shows:►Social Security (28%)Social Security (28%)► Investments (30%)Investments (30%)►Private retirement plans (36%)Private retirement plans (36%)► Income from this farm (22%)Income from this farm (22%)►Sale of land; Other assets (41%)Sale of land; Other assets (41%)

Have you had Have you had discussions about discussions about

retirement?retirement?►2004 Survey shows:2004 Survey shows:►No retirement discussions with anyone No retirement discussions with anyone

(21%)(21%)►Discussed with family (31%)Discussed with family (31%)►Lawyer (9%)Lawyer (9%)►Accountant (13%)Accountant (13%)►Farm Advisor (4%)Farm Advisor (4%)

Have you considered Have you considered who your successor who your successor

will be?will be?►2004 Survey results show:2004 Survey results show:►32% have identified a successor32% have identified a successor

Generally a childGenerally a child►5% are daughters5% are daughters

Average age of successor is 31Average age of successor is 31 Successor generally working off farmSuccessor generally working off farm

Where is your potential Where is your potential successor “the succession successor “the succession

ladder”?ladder”?►Bottom rungBottom rung: Allow the successor to make : Allow the successor to make

technical decisions: what to feed, which technical decisions: what to feed, which fertilizer to apply; livestock managementfertilizer to apply; livestock management

►To make strategic planning decisions: mix To make strategic planning decisions: mix of enterprises, labor related decisions.of enterprises, labor related decisions.

►To make financial decisions: sales, loans, To make financial decisions: sales, loans, financingfinancing

►Top rungTop rung: Deciding when to pay bills.: Deciding when to pay bills.

CES programming is CES programming is aimed at helping aimed at helping

audiencesaudiences►Understand what is involved in the Understand what is involved in the

process;process;►Seek appropriate help before making Seek appropriate help before making

key decisions;key decisions;►Make decisions when the timing is Make decisions when the timing is

rightright►Monitor the progress of the planMonitor the progress of the plan►Enjoy your retirement!Enjoy your retirement!

Succession planning will be Succession planning will be accomplished when:accomplished when:

►All parties have compatible goalsAll parties have compatible goals►Business and Personal challenges are Business and Personal challenges are

addressedaddressed►The business remains profitableThe business remains profitable►Both generations improve Both generations improve

management skillmanagement skill►Both generations are willing to make Both generations are willing to make

the plan workthe plan work

Your Questions?Your Questions?

► jcb1@psu.edu/jcb1@psu.edu/ ► 814-863-0575814-863-0575