Are you prepared to pass on the family farm or business?
Part of our practice is spent helping families prepare to pass on the family farm, ranch or other business. Given that this is usually the family’s largest asset it is critical this be done properly.
Unfortunately, the majority of family businesses fail transitioning to the next generation. However, the likelihood of success dramatically increases when the family prepares for this transition.
Despite its clear advantage, many are hesitant to create a plan to transfer the business. There are many unknowns. Parents are often afraid they will be required to give up control before they are ready, or they mistakenly assume their children will know how to run the business when they are gone.
An effective plan addresses these unknowns and sets the next generation up for success. Control of the operation is transferred as the first generation is ready to step away and the younger generation is properly trained.
An effective transition plan also preserves the value of the business. Everyone is better off if the business has retained a value the parents can reap when it is time to retire.
Obviously, a healthy family business blesses the children who will take over the business. With proper planning, it also blesses the lives of the children who will not be part of the business. However, this does not happen automatically. It is especially challenging for farmers and ranchers when many families are “land rich” but “cash poor.”
Can a family business survive the transition and allow for all the children to share in the estate, even if they are not all involved in the business? That answer is absolutely yes. We will be discussing some of these challenges — and solutions — in coming columns.