Business transfers are different from typical sales: the transferor tends to pass management duties to the successor gradually and will often remain involved in the business.
In farm business transfers, it is common for assets, machinery, debt and buildings to be taken into consideration. However, in cases where transfers don’t succeed, 75% of the issues relates to human factors. Parties may back out because of the following situations:
- The parties have divergent visions about the future of the business
- The transferor mistrusts the successor, or the successor lacks motivation
- Communication is strained or contradictory
- The transferor conveys an alienating view of farming
- The parties have difficulty delegating or sharing duties
- The farm business is poorly managed or lacks a modern approach
- Parties are not aware of the resources available
- The successor is a woman rather than a man
Family farming is a complicated system given that farming activities and decisions affect not just the business but the family as well. There is an emotional dimension at play in this setting, with many relationships involved that can be difficult to manage.
On top of these factors, 58% of farm owners report that they experience psychological difficulties when selling their business. Most find it hard to talk openly about the transaction with their employees, families, and business partners. Transferring the farm often leads to a loss of identity for the owner.
The fundamental roles within families are keeping people fed, building their self-confidence and passing on the family values. However, all businesses need to turn a profit. In family farming, this requires reconciling economic success with harmony among family members—which can pose quite a challenge. The home’s physical proximity to the business also results in frequent and close contact between the owners, causing the line between family and farm to blur.
When conflicts arise between a transferor parent and the successor, the other parent, generally the mother, often finds herself caught in the crossfire and ends up having to serve as the mediator. This situation can create emotional strain.
Various conflicts can arise when the successor and transferor are young (e.g., in their 20s and 40s), as the owners seek to consolidate what they have accumulated while the younger generation plans to expand. On the other hand, if the successors do not hold sufficient shares in the business as they near their forties, this can be frustrating and cause them to disengage. The best time to steward a well-planned transfer, which ideally is spread out over a period of 5 to 15 years, is when the successor is in their thirties and the transferor is in their fifties.
Before the transfer can go through, several matters need to be openly addressed and settled, thus ensuring a harmonious atmosphere and clearly expressed intentions on the part of everyone involved. Talking about farm succession and retirement is nothing to fear. People’s concerns, interests, and issues need to be laid out so that solutions can be reached. Other sensitive subjects also need to be fully clarified, including:
- Where the parents and their children will live
- What the parents’ role in the business will consist of
- Sibling relations
- Financial equality with the rest of the family
- The selling price
- The role of the child’s spouse in the business will entail
- Generational differences in values
One study on the level of communication between farm owners and the next generation indicated that 44% of those in the younger generation underestimated how long it would take to complete the transfer compared to the parents’ expectations. Also, 34% of farm owners stated that their next generation had not prepared a business plan when in fact they had. Finally, in 20% of businesses surveyed reported opposing visions over the farm’s future development.
In any farm business transfer, a culture of participation will be more conducive to the next generation’s development and success. By contrast, a patriarchal culture generally hinders learning. Overall, it appears that 80% of individuals are resistant to change, including 20% who are dead set against it. The more people dig in their heels when changes are made, the more energy the initiators have to spend appeasing them. Accordingly, too much resistance on either side can cause the successor to opt out. Proper planning and open communication channels are the keys to preventing such resistance and facilitating change and smooth transition.
Although this planning process is essential, only 11% of transferors and 19% of identified successors do it properly.