Written By Liz Bayne and Joanna Lidback
The skills needed to manage the successful agricultural businesses of today are not gained overnight. Some skills are gained in school, some on the job, and others through the “school of hard knocks.”
Most of our farm businesses have developed and grown over the lifetime of the older generation now running the business. They typically started small and developed their management skills as the business grew. Now, as the older generation is looking toward slowing down and transitioning to the next generation, the challenge is to transfer all the management skills learned in a lifetime to the next generation.
The best succession plans start early and allow a gradual transition, slowly and continually providing opportunities for the next generation to develop the skills they will need to take over the business. At the same time, this transition allows the older generation to evaluate the potential successors, grooming and developing them based on their desire to take over the business, and their aptitude and skills to continue its growth and prosperity.
In working with farm businesses, production-oriented skills are often well taught, with the younger generation learning a great deal from their parents and grandparents. They are also eager to embrace new technologies on the farm. The area that is often less emphasized is the financial management of the business. This, however, should be the most
important skill transferred to the next generation. If the farm is well managed financially and is profitable, then there is a great deal of flexibility available for both generations. If the financial management skills are not part of this transition, the farm can find itself limited and even strained in other areas as well.
A great goal is to have financial training start early and to be consistent with it. You can shift more and more responsibility over time. This will ensure that the younger generation has the skills necessary when it is time for them to take over the farm.
Here are 7 tips for transferring financial management skills:
- Have regular meetings and discuss the farm’s finances.
- Involve the younger generation in the day-to-day process of paying the bills and managing the records.
- Allow the younger generation to take part in decision making, such as the purchase of equipment. Discuss your thought process and the pros and cons of the purchase. Have the younger generation do a partial budget on the purchase and present it to you.
- Talk about your goals for the farm—short, intermediate, and long term. Prepare a budget as a team to test your goals and then measure the success.
- Have the younger generation sit in on a financing discussion with your lender.
- Have the younger generation attend farm meetings with you—especially meetings where farm finances are discussed.
- Let the younger generation suggest and carry out a change on the farm. Have them present a plan and then be accountable for the results. This is a great learning tool.
Yankee’s consulting program works with farm businesses on transition planning, budgeting, estate and business planning, entity selection and tax planning. If you would like to know more, please contact a Yankee Farm Credit consultant.