The 3 P’s of Succession Planning
As advisors, we are actively involved in succession planning for farmers and other businesses. This is usually a long process and will change over time and as the generations involved grow and mature, their goals will usually change.
There are three main goals related to this planning:
- Protect – The primary goal of any succession plan is that both generations involved are still protected in the following areas:
- Financial – Are the owners transferring the business still protected from a financial standpoint. Did they create enough retirement and other assets outside of the farm to protect their retirement income?
- Operational – Does the succession plan provide protection from operational issues such as the new generation being ready to take over the farm operation. Nothing will ruin a farm family quicker than the next generation taking over sooner than ready.
- Entity – Does the succession plan provide for legal and entity protection. Are they taking advantage of limited liability companies, corporations and trusts where appropriate.
- Provide – Once protection is taken care of, the next step is to provide for both generations. Is there enough cash flow to provide a normal living standard for both the current generation and the new generation. If not, how will the farm family address this. Will they have a spouse work off the farm or one of the heirs. Will they do custom farming, etc.
- Prosper – After the farm family is protected and provided for, then comes the time to prosper. Does the farm family have enough management time and experience to expand the farm operation with more acres. Or do they have excess machine time and people to do custom farming. Each farm family has different goals when it comes to the prosper stage, but they must always remember to protect and provide first.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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