7 Traits of Highly Successful Farm Transitions

Mike Downey is a farm transition advisor and one of the owners of Next Gen Ag Advocates, which focuses on non-family transitions, connecting producers to retiring farmers without a successor. He also leads succession planning efforts for UnCommon Farms, which also provides business, risk management, and financial planning services to farmers.

In a recent webinar, Downey pointed to data showing the increasing age of farmers. “As we see more and more farms transition within the next 10 to 15 years — that’s called the great farm wealth transfer, the greatest transfer of wealth our country has ever seen — we’ll likely continue to see consolidation toward fewer and larger farms.”

He said there are seven key things farmers can do to improve the chances the farm will successfully pass to the next generation. “These are all things that 95% of farms and agribusinesses can do, but only 5% actually do,” he said.

1. Prioritize Succession Over Estate Planning

Downey described succession planning as outlining the transition of day-to-day management and leadership, while estate planning involves transitioning assets, often at death through a will or a trust. While managing the assets is certainly important, they’ll likely just be sold by heirs if there’s no succession plan.

2. Identify and Train Successors Early

“Think about who the players are in your family,” he said. “Who are your future managers and leaders? Who are the more passive landowners? Who should control what assets?” 

Getting started early is key to success, Downey said, pointing to one farmer in his 70s who came to him seeking help with a succession plan. When he walked in the office with his 92-year-old father, Downey realized the man wasn’t looking to transition the farm to his children, but from his father. 

3. Recognize That Fair Is Not Always Equal

In the case above, Downey said the 92-year-old father had planned to divide his $1 million worth of equipment equally between his 12 children. The 70-year-old son wouldn’t have been able to continue farming without the equipment. 

“We talked through some different ideas and adjusted to more of an equitable plan that gave more consideration to his farming son who was in need of control of the equipment and buildings and things to continue on the farm,” he said. “And we could equalize that for the non-farming heirs with other non-farm assets.”

4. Make a Commitment to Communicate

“When we start intermingling family and business and the day-to-day farm versus the long-term ownership of the land, it can get a little difficult and messy sometimes,” Downey said. “But those that have the willingness to roll up their sleeves and do their homework and put the work in and figure this out are the ones that are most likely to succeed and see a successful transfer.”

Sometimes conversations regarding in-laws, who has decision-making privileges, and even little things like who’s allowed to fill their vehicles from the fuel barrel can get awkward. By outlining a plan and communicating it clearly to family, Downey said, “You’re planning to avoid conflict before it even occurs.”

He said it’s important to remember different family members may have different preferred methods of communication.

5. Assemble a Professional Advisory Team

Downey said farmers should surround themselves with good people that challenge them and have their best interests in mind. “Understand that different advisors kind of operate in different buckets, if you will,” he said. He suggested appointing a main advisor to coordinate with everyone on the team and keep conversations on track.

6. Embrace Continuous Improvement

“Lifetime learners don’t subscribe to the, ‘We’ve always done it this way’ mentality,” Downey said. “They’re willing to work on the business, not just in the business.” 

Improvement doesn’t necessarily mean making the farm bigger, however. “Some of the most successful farms I’ve worked with have actually downsized at some point in their farming career, then reviewed and/or updated long-term planning goals moving forward,” he said.

Downey pointed to a study that showed the top 25% of successful producers were only 5% better than average, but 5% better in multiple aspects of the business. “If you can do 5% better increasing your average soybean yields, 5% better on the price — which doesn’t always have to be the marketing, it could be 5% better locking in a basis, and 5% better locking in expenses, that can all add up to a big compounding effect on profitability.”

7. Take Strategic Time-Outs

“Don’t be afraid to take a time out. Really sit down, establish the goals for your farm, and determine what success looks like,” Downey said. “When it comes down to strategic planning, it’s recommended to spend 15 minutes per day or 10% of your time annually. That’s about an hour and a half in a week, or maybe you set aside one day a month to really focus on your strategic planning. Maybe you get away from the business, away from the distractions to review those annually. Evaluate new markets and new enterprises, and maybe certain enterprises you want to terminate because of poor profitability.”

When it comes to managing current responsibilities with long-term planning, Downey said, “Keep your hands on the wheel and your eyes on the horizon.”