The Four Pillars of Comprehensive Planning

Yogi Berra is reported to have said:  “If you don’t know where you’re going, you’ll probably end up somewhere else.”  The same is true of succession planning.  I am presenting at a series of seminars put on by IFA in November throughout the state of Utah on the topic of Succession Planning for Farmers and Ranchers.  In preparing, I have been studying again the four pillars of planning applicable not only to farmers and ranchers, but really, all family owned businesses.The first and most fundamental question to answer is:  Do you want to transfer the farm/ranch/family business as a “viable business” or simply as a “group of assets?”  If you want to transfer a viable business you need to be intentional about doing so.  In being intentional you must consider the applicability of the four pillars to planning to you, your family and your business.  The four pillars are:- Business Planning – Establish a business plan.  Seek out and implement competent advice on the proper type of entity – such as a corporation or LLC.  Create an organizational structure, putting the right people in the right places and clearly defining responsibilities.  In short – treat it like a business!- Retirement Planning – Do not rely solely on the sale of the business to fund your retirement.  It may not happen and if it does you may not be able to get what you need.  This will severely limit your options when it comes time to make the transfer.  Institute and regularly contribute to an IRA or similar retirement savings plan to allow for greater flexibility when the time for retirement comes.- Ownership Succession Planning – The important questions are who, when and how.  Who will you transfer to?  When will the transfer occur?  How will the transfer occur?  How will the transfer be funded?  Identify potential successors early and groom them to take over.  Give them a variety of responsibilities.  Remember when dealing with children that fair does not necessarily mean equal.  Consider life insurance to fund the transfer.- Estate Planning – Your estate plan acts as the backstop if you pass away before the business is fully transferred to the next generation.  A properly drafted and funded Trust is a must.  You do not want the business tied up in probate or subject to any questions of ownership and control.The statistics are that only 30% of businesses will transfer successfully to the second generation and less than 10% of those will make it to the third generation.  In short – you have to know where you are going, because if you don’t, just like Yogi Berra said, you will end up somewhere else!  Proper planning will greatly increases the chances that your family farm, ranch or other business can be successfully transferred to the next generation and beyond.