Stages of Succession October 6, 2005 What do you want to happen to your farm when you are finished with it? Would you like for your children or nieces and nephews to farm it? Succession Planning is going to cover what happens to your farm when you no longer farm. The term transitioning will be used quite a bit through the presentation and it is referring to moving the farm to the next generation that will operate the farm business.

Objectives Identify strengths & weaknesses of the operation that will affect succession of the farm Identify what you hope to accomplish through Succession Planning Outline a Succession Plan Understand differences in business entities

Process Begins when the younger generation enters the family business and ends when the older generation leaves. “Team Approach” Length of process varies Four Identifiable Stages Team approach used so that all parties feel involved. This approach should be supported by good communication and continuous skill development. Length of process dependent on the maturity and skills of the younger party and the length of time until the retirement of the older party.

Stage 1 Testing Objective: Determine whether the young person really wants to farm and how well the various parties can work together. Typically involves paying the younger party a wage. Pay can be established based on market wages, family needs, equality among stakeholders, or separately agreed upon returns to ownership and management contributions.

Stage 2 Commitment Younger party begins to contribute more property and management to the business. May need an enterprise or whole farm operating agreements that clearly spell out the division of income. Shifts in the organizational structure and changes in the legal structure usually done during this phase.

Stage 3 Established Younger generation has acquired the skills to manage the business, but the older party is still fully involved as well. Fairly rapid ownership transfer occurs during this stage. Essential that legal structure is flexible enough to accommodate change.

Stage 4 Withdrawal Older party withdraws from the management of the business at retirement. Lease arrangements may be used by younger generation to obtain use of real estate, machinery, and equipment that is still owned by the older generation.

Questions Point the class to the handout titled “Business Succession Plan” and have them review it and possibly start filling it out. Also, point out the two handouts behind that one – The To Do List and Done List. Mary Sobba University of Missouri Extension Agriculture Business Specialist (573) 581-3231 sobbam@missouri.edu