Deciding the future of a family farm or ranch operation is increasingly important as the “owner” generation continues to age. Operations who have brought children or grandchildren on to run the business need to start having productive discussions about finances, according to Jessica Groskopf, Extension agent with the University of Nebraska-Lincoln (UNL).
“When we start talking about bringing people back to the farm or transitioning, it’s important to be willing to talk about the finances with a team that can help bring different perspectives,” Groskopf said during a recent UNL webinar.
Groskopf recommends that each party involved in the future planning of the operation, both owners and heirs, have their own team of experts that include an attorney, a banker, a tax accountant and a certified financial planner.
“No single professional can do everything for you, but in the end you are the ultimate decision maker,” she said.
A set of key questions can help each party determine what they really want, which Groskopf noted is essential.
“A lot of owners, for example, have skipped ahead to mechanisms of transfer instead of considering what they want to have happen with the farm or ranch,” Groskopf explained.
Questions owners should consider include:
• How much money do you currently draw from the farm or ranch?
• What are your honest plans for asset division? Do you expect this to happen while you are alive or at your death?
• What are your honest plans for your sunset years? Is your spouse on the same page?
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• Are you ready/willing/able to share the financials of the business?
• Are your ready/willing/able to communicate your financial needs during the transition and into your sunset years?
• How much do you believe the business can compensate heirs? Who should be compensated?
Having quality conversations depends on the ability for the owners to answer these questions prior to discussions with heirs, Groskopf noted.
Once the owners are ready to discuss with heirs, beneficial questions for both parties can include:
• What are your biggest concerns/fears?
• Who are your service providers (banker, tax accountant, etc.?)
• Who is “doing the books”? What does “doing the books” mean?
• How often would you like to see financial documents?
• What is your attitude towards debt? Does it align with others in the business?
• How are you going to handle management decisions, specifically sales and purchases? (i.e. regular business meetings, an approval system, and methods of payment, including credit cards, checking account signature authority)
To view the full session of the webinar and related resources, visit: https://cap.unl.edu/succession/farm-transition-beginning-conversations-about-finances-april-13-2023-webinar.