Include Farm Loan Education in Your Succession Planning

The term Succession Planning is not new to those in the business of agriculture.  While an important part of any operation, many farmers and ranchers fail to pay close attention to the process.  Succession planning requires considerable upfront preparation and plan maintenance to keep moving in a productive direction.  Many resources are available, as this issue is important to any type of business, especially when adult children are brought into the business.

It’s not uncommon for a finance manager, relationship manager, credit manager or underwriter to have a meeting with a customer setting up a new loan, inspecting crops or livestock, or getting loan documents signed with a single proprietorship owner at their place of business.  At some point, another family member, often a child in their 30s, 40s, or older, walks into the meeting room to get a cup of coffee or to drop off some receipts.  The owners make a pleasant introduction and the family member walks out.  When asking what job this person holds in the operation, it is discovered that he/she manages the crops or livestock or might oversee the shop and harvest operations.

The first question in the lender’s mind is why is this family member not sitting at the table listening, learning, and participating in the loan process?

Owners may have succession plans that do not involve family taking over the business.  However, if the plan is to have one or more children or family members take over the business, when should they be involved in operations?  The short answer: it cannot happen too soon. For some children this may even be high school age. 

Utilize the younger generation’s aptitude for technology; why not put some of that knowledge to use helping to prepare budgets or work up a system for monitoring inventory, equipment maintenance schedules, etc.  Once college age, those tasks can be increased according to skill level.  Do not hold them back; encourage involvement.  By their mid- to late-20’s, they will likely have a good understanding of the business aspects of the operation.

Why is this important?  It is an unfortunate reality that events out of our control will occur. Folks get life threatening illnesses; they get divorced, and accidents occur.  If any maladies like these happen and adult children have not been geared toward stepping up and assuming total managerial duties, business disaster usually follows.

It remains important to include these family members in the outside business of growing crops and livestock as well.  That portion of business growth is essential, but employees outside the family can usually accomplish those tasks if needed.  If there are multiple siblings wanting to work on the farm, then possibly all operations can be covered by a family member; but at least one needs to be the next office operations manager.  They need to be involved in meetings and negotiations with bankers, accountants, attorneys, insurance agents, grain and fertilizer salesmen, equipment dealers, etc.

Bottom line: Get those who will ultimately assume business operations involved as early as possible.  Financing of short- or long-term farm loans has become increasingly more complicated. The loan process, as well as other business practices, needs to be understood by current management and the eventual successors to ensure smooth, ongoing operating procedures and to meet desired financial goals.

If you’re wanting to educate a family member on the lending process, or if you’re ready to refinance or make your next land purchase and have questions, start the process by contacting a Conterra Ag Capital lending specialist today.

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