New Year’s Resolution Time
New Year’s Resolution Time
Hang up your work boots and move on to the next vocation in your professional life, retire to a cabin in the woods, take up residence on your boat, or spend time with grandkids? Most people romanticize about retirement; at times it sounds like the reward at the end of a long journey. At other times, it seems like a torture of a thousand unknowns. Like most farm owners, you’ve spent your entire life nurturing the operation. So the reality of cashing out, stepping away and living a life of leisure is a bit foreign and uncomfortable. But what if you could in good conscience prepare yourself with a retirement option?
Whether your motivation is a step into the next phase of life, or learning how to control and better anticipate an unknown future, comprehensive succession planning is designed to help. The process empowers owners to strategize the next steps and it creates options for a wide variety of potential outcomes. It allows you to control the terms and conditions of an ownership transition and provides financial security for the family. A plan mitigates the estate tax and transfer obligations, and it prepares the next generation (related or unrelated) to assume the responsibilities of leadership. Proper planning for succession puts you in the pilot’s seat; it maximizes your control over both known and unknown circumstances.
For an ownership transition to be effective, it must provide positive outcomes for the owner, the family and the operation. When properly executed, a comprehensive succession plan will offer you options; the final decisions are always up to you. Succession, transitioning your business to a well-prepared next generation, should be a part of your retirement plan. That transition should include financial security, which allows for peace of mind. It must include provisions to mitigate the estate tax and provide for pre-mature death. A comprehensive plan always details some method for leadership development.
A comprehensive succession solution should include:
- Ownership Transition
In most cases, transferring ownership to a well-prepared next generation requires financial planning for retirement, a contingency plan for non-performance and a method for gradually turning over the reins. As you evaluate alternatives for ownership transition, maintaining a continuity of management strength will be an important objective for both buyer and seller.
As an experienced owner, you should commit time to helping the next generation transition to the management role. Accepting the mantle of responsibility is a learning process; there is a lot of value and wisdom in experience.
- Financial Security
A comprehensive plan provides financial security for each ownership household dependent on the continuing success of the operation and/or the proceeds from the sale. Each affected family must measure the financial results of the proposed succession plan to determine the effects on their financial security. Good financial management is imperative for lasting security. All too often business owners become tied to a sale that does not yield long-term positive results or may go sour due to a lack of factors that could have been avoided with some due diligence.
- Leadership Development
Most next generation leaders have a solid education and good experience. A plan for developing leadership skills, including business management, team development, project coordination, business design and professional growth, is critical to operational growth and lasting success.
No matter what level of know-how a successor brings to the operation, they often struggle with the obligations of ownership. You should be willing to guide the new owner through these early challenges.
- Estate Tax Provisions
An owner’s personal estate planning documents should parallel the provisions of the succession plan. An estate tax plan must protect the integrity of the operation, plan for distributions, mitigate the estate tax liability, and ensure the family’s financial security.
Why leave a lifetime of work up to chance? With a little knowledge, a comprehensive planning model, and some time you may forestall the unthinkable and plan for the desirable.
A New Year’s resolution is only as good as the commitment that supports it and the habits that change because of it. With 2014 underway, now is a great time to start.
Kevin Spafford is the founder of eLegacyConnect which provides succession solutions for farm families. Members of National Sorghum Producers receive a discount for full access to eLegacyConnect (membership code sorghumgrower).