by Amber Roberts, Extension Educator
A business can pass from one generation to the next without planning, but making a plan greatly improves the odds of a successful transition. Ridgewater College Farm Business Management instructor, Jim Molenaar, discusses the four key components to plan for your farm's business succession.
Using the business succession matrix, Molenarr identified four major aspects of the farm business that need to be transferred: labor, income, management, and ownership. Most farmers agreed that labor is the easiest component of their business to pass onto the next generation. While management and income tied for the most difficult components to pass onto the next generation.
To begin planning for the transition of the business, each of these components can be broken down into a series of phases.
- Testing Phase - The retiring generation tests the entering generation's desire to farm and commitment to taking over the business. In this phase, the entering generation begins to get more responsibility while gaining experience, such as making day to day decisions while still under the management of the retiring generation.
- Commitment Phase The entering generation is serious about their commitment to taking over the business and is given more and larger responsibilities on the farm. This could include making long-term management decisions, such as managing the dairy herd, while still under the supervision of the retiring generation.
- Established Phase - The entering generation manages alongside the retiring generation. Both generations are involved in management decisions, such as both meets with the financial lender to discuss loans. The retiring generation may begin to let the entering generation make sole management decisions for the farm.
- Withdrawal Phase - The retiring generation has fully given over control to the entering generation, they may still advise from time to time, but the entering generation makes the final decision.
