Farm & Business Succession Planning

1. Farm & Business Succession Planning Dr. Alex White Agricultural & Applied Economics Virginia Tech moneyguy@vt.edu 540-231-3132

2. What are we talking about? • Successfully moving a business from one set of owners/managers to another • Next generation, skip a generation • Same generation • Non-family • Changing ownership & management responsibilities

3. Family Business Transition Planning • POISON • Procrastination • Overlooked • Ignored • Shunned • Out-of-Date • Neglected

4. Main Points • Goals & needs • Communication • Evaluate current state of business • Living needs • Estate planning & tax management • Develop a structured process • Timeline, written job descriptions, etc.

5. Keys for Successful Transition • Start early • Clearly establish goals & objectives • Farm, family, personal • Different for each generation! • Differences in goals? • Older generation • Less risk, no dramatic change, continuity, scale back of effort, retirement (semi- or full) • Younger generation • Expansion, new technology, responsibility, time away from farm

6. Keys, Part 2 • Communication among all parties • Main reason for failure! • Think about using a neutral party • VCE series on intra-family communication?!! • Be candid in your evaluation of the business • Remove the emotions • Resource inventory • Business/Financial analysis • “Would you want to buy this business?”

7. Son of Keys • Consider the living needs of all parties • US Average = $42,000 pre-tax • Older generation – retirement income? • Younger generation – full-time, part-time, non-business • Farms = $250,000/year gross with no non-farm income • Living budget • Daily expense tracker • Retirement planning worksheet • Portfolio duration calculator

8. How Long Will $600,000 Last? Cell values indicate the number of years your portfolio will last.

9. How Long Can I Live on $50,000? Cell values indicate the number of years your portfolio will last. Ignores any other sources of income

10. Return of Keys • No offense, Jesse, but… • Estate planning & tax management are easy! • As long as you’ve done the preliminary work!! • Treat the family business as a business • Written job descriptions/duties • Proper legal organization (S-corp, C-corp, LLC) • Timeline for transition of ownership & management • Doesn’t have to be overnight, unless….

11. Some Tips for Success • Kick out the next generation! • At least for a year or so • Phase in the next generation gradually • Responsibility and ownership • Older generation must allow successor to grow and manage • Often a stumbling block!

12. Get Professional Help • Attorney • Lender • Accountant • Financial planners (CFP, PFA) • Farm consultants • Facilitator • VCE agents

13. Look for Help • Local government and agencies • State and national agencies • Tax benefits • Zoning • Tourism

14. Potential Resources • Virginia Tech, VSU, etc. • VCE and MCE • VDACS • VFBF • Lenders • What can we do to help? • What would make transition planning easier?

15. Transition Top 10 Checklist 1. Develop goals, objectives • Provides direction 2. Start estate planning early • Power of Attorney, AMD/Living Will, titling 3. Business organization • S-corp, C-corp, LLC, etc. 4. Get rid of the successor • For a while 5. Written job descriptions/duties

16. Top 10 Cont. 6. Develop a timeline for phase-in/out • “Probationary period” 7. Team approach • Get everyone involved, including professionals 8. Local assistance • Never turn down help! 9. Allow the successor to grow • Swallow your egos, train, mentor 10. Communicate, communicate, communicate