Saturday, March 29, 2008

Chute N the Bull Week 14

In Texas, there are almost eight times as many farmers over 65 years of
age than there are farmers under 35 years of age. It is estimated that
up to 400 million acres of U.S. farmland will change hands in the next
20 years. Who will farm these acres? Who will farm or ranch on your

We usually think of farms and ranches as family businesses. A family
business is one in which more than one family member takes on
or active ownership responsibilities. The essence of a family business
is that blood, work and business ownership are held in common. About 30
percent of family businesses make it to the second generation. Only
about 15 percent survive to the third generation. About one in 20, or 5
percent, can claim that they are fourth-generation family businesses.
(Note: Many farm and ranch families own and operate land that has been
in their family for multiple generations. Transfer of land does not
necessarily equate to succession of a business operation.)

The concept of a multi-generational family farm or ranch holds appeal
for many, but the reality is that it may be more difficult to enable
succeeding generations in the business than it was to create the
original business. If you truly wish for someone close to you to carry
on with your farm or ranch operation, then you need to begin succession
planning. Not soon, now! The literature is consistent in pointing out
that the succession planning process can be accomplished over a period
of five to 15 or 20 years. It may be later than you think!

Succession planning is the ongoing process of ensuring the continuation
of the family business. It is not retirement planning for the current
operators, but their retirement plans are important to successful
succession planning. Nor is succession planning merely estate planning
with the objective being tax minimization. But, an effective estate
is an important component of comprehensive succession planning. The
succession plan guides the transfer of the family business — the
ownership, management and labor — to the next generation. Preserving
family harmony and the continued success of the business are the
essential objectives of succession planning.


* Succession planning is a process that requires time (five to 15
years) and effort by many. It should begin many years before the
operator plans to retire.
* Start now. The earlier in your life and the lives of your
successors the process begins, the greater the likelihood of achieving
your goal.
* Critically assess the finances of your business. Is your business
profitable? Is net income of the farm or ranch increasing enough each
year to cover inflation in living costs? Will continuing your operation
be a boon or a burden to your successors?
* Schedule regular, formalized family meetings. Encourage everyone
to learn as much as possible about succession planning.
* Begin planning for your retirement.
* Outline how and when labor and management will be transferred.
These plans should include a "successor development plan."
* Ownership transfer includes, but is not necessarily limited to, a
legal, up-to-date will.
* Develop a contingency plan, probably at the beginning of the
process. What if something catastrophic occurs before succession
planning is completed? How will you handle divorce, illness, injury,
business failure or death? The ultimate contingency plan is the will.
* Set a timetable for completion of activities in the process.
Measure progress against the timetable and adjust as needed.

The idea of a multi-generational family farm or ranch business is
appealing; the reality is that farm business management is difficult in
and of itself. Planning for and successfully transferring the total
business, not just the land, to succeeding generations is time
and challenging. If you undertake the task, stick with it — the
results will transcend time! You can find past articles on the web at for your reference. Extension programs serve
of all ages regardless of socioeconomic level, race, color, sex,
religion, disability, or national origin. The Texas A&M University
System, U.S. Department of Agriculture, and the County Commissioners
Courts of Texas Cooperating.

Tommy Neyland, CEA-Ag
Texas Agrilife Extension Service
P.O. Box 188
Centerville, TX 75833