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Transferring farm management responsibilities to the ‘next generation’

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Posted July 3, 2013 in the Southeast Farm Press


The decision to transfer the management of a family farm should be the culmination of many years of discussion between the older and younger generations.
 
Does the family talk about the future of the farm? If a child expresses interest in operating and owning the farm, is the child’s enthusiasm nurtured as they grow-up on the farm?
 
On many family farms, the “recruitment” of the “next” generation to operate the farm may start at an early age. Parents encourage their children to participate in 4-H and FFA activities.
 
A major benefit of these educational programs is demonstrating the relationships between math, science and technology courses taught in their local schools and how this knowledge is used to make “real world” management decisions on the farm.
 
Consequently, youth view agriculture as an exciting and rapidly changing profession where new technology and cutting edge research is continually being adopted to help manage and improve farm profitability.
 
Are the parents willing to discuss ideas that the children are exposed to? Are the children strongly encouraged to attend a two or four year college? The willingness of parents to consider and adopt their children’s newly acquired knowledge signals that the parents respect their children’s ideas. 
 
Furthermore, the adoption of new programs and technology on a farm that will enhance profitability conveys the notion to the younger generation that the farm is operated as a business.
 
Do the parents encourage their children to work off the farm for several years after college to gain additional skills about how other businesses operate? By working off the farm, the younger generation will observe and learn how managers supervise employees that have diverse cultural backgrounds.
 
Off farm employment provides the younger generation with an appreciation of the perks and responsibilities of self employment.

Frank discussion
 
Before the younger generation returns to the farm, there needs to be a frank discussion between the younger and older generations. It is essential the discussion covers what skills the younger generation will bring back to the farm.
 
Furthermore, how these skills will be used to generate additional farm revenues to pay for their salary as well as enhance farm profitability should be discussed. 
 
In addition, the discussion should include answers to questions such as: Do they have a passion for agriculture? Do they enjoy working with production and financial records?  Do they have a strong work ethic? Are they willing to work long hours? Can they handle the emotional and financial rollercoaster driven by low prices, droughts, floods, and so on? Are they able to effectively manage people?
 
A job description should be written which defines the younger generation’s duties and responsibilities. The parameters that will be used to measure the young person’s success in managing the delegated tasks will be included in the job description.
 
All of these questions must be answered before the younger generation is given the opportunity to enter the farm with management responsibilities.
 
There are several important keys to the successful transition of management responsibilities from the older to the younger generation. 
 
First, can the older generation sit on the sidelines and let the younger generation make mistakes when they are learning to manage their part of the business; does the younger generation learn from their mistakes?
 
Second, does the younger generation feel comfortable soliciting advice and discussing potential changes in the business with the older generation? In contrast, if the younger person makes a suggestion, is the idea quickly dismissed by the older generation and told that the idea will “never work on this farm”. 
 
The older generation can easily dampen a young person’s enthusiasm for wanting to work in the family business by criticizing their ideas and bringing up past mistakes.
 
Bear in mind, part of the older generation’s reluctance to implement the younger generation’s ideas may be the older generation’s perception that changes in the operation of the farm may jeopardize their equity in the business. On many farms, this equity will fund the older generation’s retirement.
 
Many younger managers fail to understand that the preservation of a farm’s net worth is a dynamic, not static, process and that each generation must be in the wealth creation mode. A business whose primary goal is to maintain the status quo will go backwards and eventually go out of business.
 
The preservation and expansion of equity are one of the key components of the successful transition of management responsibilities to the next generation.
 
When the younger generation returns to the business they should be given responsibility for a small part of the business. 
 
For example on a dairy farm, the younger person will be given responsibility for managing the milking herd. Culling rates, calving internals, pregnancy rates, and somatic cell levels are parameters that can be used to measure an individual’s performance as a herd manager. 
 
As the younger generation proves they can increase farm equity, they are given additional responsibilities.

Trial period
 
A minimum of two and preferably a three year trial period can be used as a means to determine that the younger generation has the management abilities to increase farm equity. 
 
Likewise, this testing phase will show that the younger and older generations can work together with the goal that the younger generation will eventually bear full responsibility for managing the farm.
 
At the conclusion of the trial period, a framework will be developed that will outline the time frame and legal entities for transferring farm assets to the “next” generation. Remember, once the older generation transfers ownership of farm assets (cattle, equipment, land etc.) to another person, they lose control of that asset! 
 
Consequently, the trial period is critical for the younger generation to demonstrate they have the management ability to own and operate the family farm.
 
Every generation has its challenges. The older generation has a wealth of information and history tends to repeat itself. 
 
The younger generation needs to exhibit respect, patience and humility when asking their elders questions regarding how they managed the family farm and increased farm equity. 
 
On the other hand, the older generation needs to be open minded, willing to listen and try new management schemes that can increase farm profitability.
 
A wise and profitable farmer said that whenever he attended an Extension program, industry sponsored meeting, or a farm auction he always tried to learn one new idea that he could bring back to the farm that would increase farm profitability and make his work load easier. 
 
In an era of rapidly changing technology, the younger generation brings new ideas and the ability to “think creatively” back to their family’s farm.
 
By maintaining an open mind, the older generation can transfer management and ownership responsibilities to the “next” generation as they utilize innovative techniques to preserve and increase farm equity.