There’s a balance that must be struck in any farm succession plan. Mom and dad (the retiring generation) need enough money to retire and enjoy what they’ve earned, while the succeeding generation needs to start with enough to maintain a viable business.
As Jacquie Gerrard of Backswath Management explains, farm succession conversations should start with figuring out how much the retiring generation needs to retire. The follow-up question is: can the farm afford to pay them?
“Often we’re asking the farm to do something, take on debt, make a big payment, basically for no gain for the farm,” she explains. “So it’s a really good time to talk about growth, vision and how we can make something happen in order to meet the farm’s needs and the payment to retiring generation.”
Families will often begin the process expecting to have the plan completed within a year or two, but Gerrard says addressing the second part of the exercise usually takes longer than expected.
“Often it’s ‘oh wow, we may need to do something different here. Maybe the farm needs to do something different, perhaps we need a new revenue stream. We need to look at growth or doing something new in order to meet what we want to do and to pay out the succeeding generation,'” she says.
Gerrard will be discussing this topic, as well as going through the process of figuring out how much the older generation needs to retire, at CropConnect in Winnipeg on February 10th (register for the conference here).