Do you have a succession plan? You should, says Jaimie Newman-Grissom, an agricultural banker with PNC Bank who works with farmers in northeast North Carolina.
“If you haven't prepared a plan for what will happen to your assets after you are gone, what you have worked your whole life for can be at risk,” says Newman-Grissom. “I would not be afraid to say that vast majority of the farmers I work with do not even have a will, much less a succession plan, when I first raise the topic. They know they need to have them, but haven’t taken the time and don’t know where to start.”
The most critical step is to document and communicate plans and ideas.
“Too often I see farm owners suffer an unexpected health issue or death, leaving their families clueless and overwhelmed with decisions about the future of the farm,” she said. No one knows what those owners had in mind unless they wrote it down and discussed it with their future successors, family members and trusted advisors.
This is particularly important now. The recently released Ag Census data underscores the trend of the aging farmer. In North Carolina, for example, there has been a notable increase in the number of farm operators over the traditional retirement age of 65: from 15,725 in 2007 to 17,450 in 2012. That’s an of 11 percent increase.
Of perhaps more concern, the number of middle-age farmers (35-54 years old) continues to decrease, from 19,556 in 2007 to 15,323 in 2012 (a 22 percent decrease). Although, there is a modest glimmer of hope with the younger generation (25 to 34 years old) increasing from 2,056 in 2007 to 2,101 in 2012 (2 percent increase). The average age of the North Carolina farm operator increased from 57.3 in 2007 to 58.9 in 2012.
This data shows that farmers are working longer and longer, often without planning for a successor: 73 percent of agricultural business owners who are planning a change in company ownership in the next five years plan to sell or transfer their business to a family member while 18 percent plan to sell or merge with a third party.
“Deciding how, when and to whom these owners will transfer their family farm can be the most challenging – and emotional – decision they will ever make,” she said.
Writing a will
Writing a will can be uncomfortable for everyone involved. Newman-Grissom offers four tips to help get through this process:
- Start the conversation. You have spent your lifetime to earn what you now have. Begin talking now with your family about their desires for the future of the farming operation. Never assume.
- Select the right successor and begin establishing the plan. It is critical to keep good records. This is the time to complete a personal financial statement, an overview of what you own, its value, and what you owe.
- Seek professional help. Identify your trusted advisor team, which typically includes a certified public accountant, an attorney with experience in estate planning, and an agricultural banker.
- Set milestones, measure performance, and keep up the communication around the transition. Keep everyone in the loop on decisions and progress to prevent any potential confusion.
Four ways to survive slow times
Farmers spend most of the year – and a great deal of money – planting and tending to their crops, with only a short time period realizing their return, said Newman-Grissom. Many farmers struggle with the seasonality of their business and aren’t aware of the resources available to help them manage the inconsistency of their cash flow.
Newman-Grissom offers farmers four tips for optimizing cash flow during the slow times:
- Accelerate receivables. Farms and agribusinesses operate much differently than most businesses, which means you need customized banking services to accelerate the collection of receivables, manage payments and invest cash effectively. Consider online bill pay or automatic clearing house (ACH), which allows you to set up payment schedules and manage accounts receivables so that you get paid faster and can hold onto your cash longer. A remote electronic deposit service is also very helpful to speed up the payment process.
- Know your credit options. There are a variety of bank lines of credit that may help you fill gaps in cash flow. Because every business is different, your ag banker will need to know all about your business model and operations to help you find the best solution.
- Make the most of your earnings. A number of savings vehicles can help you preserve access to cash and earn interest during the busy season. A sweep account, for example, automatically sweeps extra funds into a money-market savings account earning maximum interest and provides you with access to cash if you need it during the slow season. Again, your ag banker can advise you on your best option based on your unique needs.
- Keep an open mind around technology. Work smarter, not harder. Technology can seem overwhelming, but once you try the right tools, you’ll be glad you adopted it. When choosing a bank, look for one that offers easy-to-use financial tools and technologies that allow you to manage your banking right from your farm.