Given the current state of the ag economy, many farmers want to get a close handle on their financials, especially break-evens. It’s best to view this through a short-term lens by gaining a strong grasp of the farm’s current financial situation, as well as projecting out what the scenario may look like in the near future.

We recently met a farmer who wants to get a strong handle on his financials. Now he’s been working with an ag finance specialist to better understand his true breakeven and what he can do to make a positive impact on his operation’s key financial ratios.

The long-term part of his plan is how to best transfer the operation to his farming kids when he’s ready to be less involved. Financial knowledge of the operation will help him as he works to get the best possible transition plan in place.

Full-Range Outlook

The long- and short-term parts of his plan go hand in hand. First, he’s getting more clarity on the current financial situation of his farm. He can bring the next generation into those discussions, giving them the necessary information, as well.

The result is that the positive impact on his farm will be multiplied. Strong financial awareness of his current situation helps him and his farming kids make plans accordingly to manage the farm now and into the future.

The ultimate long-range plan for the operation is the legacy plan he’s working to get in place. His plan allows him to address how the farm will transfer to the next generation and who will be in charge of operations once he steps out of the leadership role.

Engaging in both of these plans together ultimately sets the next generation up for greater success. They’re more prepared because they understand the financial situation and projections.

Meanwhile, the farmer can get the best possible plan in place because he’s fully aware of the farm’s financial situation and future outlook.

Future Frustrations

I sometimes hear about farm families where the older and younger generations have gotten frustrated with each other. There’s confusion around what the farm’s future will be like.

Here’s a situation like that. Both generations planned that the younger generation, in this case, the son who was currently working on the farm, would run the operation in the future.

But sometimes the son seemed hesitant to get involved or to make decisions for the operation. The older generation began to question the son’s commitment to preparing to be the farm’s future leader.

Meanwhile, the son felt he lacked skills and know-how to make the best decisions for the farm. The farm family became locked in a pattern of confusion about what the future of their operation could or should look like.

Because of these worries, the older generation sat down for a conversation with the son, to try to get a sense of what was going on.

They decided to approach him with a discussion of ideas about what their estate plan might look like. They also talked candidly about what they were seeing as his lack of commitment to preparing to run the farm.

Same Page

As the three of them talked, they began to realize that there wasn’t a commitment problem. Instead, they lacked a shared vision of where the farm was heading in the future.

Rather than jumping head first into the estate planning process, the family members decided that they needed to step back and take a broader view.

They worked with a farm business coach to create a strategy for the operation, with written goals and a plan for how they would achieve them. They set up financial metrics to help measure their success.

One goal was a training plan to develop the son’s leadership and management skills. The plan spelled out the timeframes for his transition into farm leadership.

The son started feeling much more comfortable with beginning to make decisions for the farm because he could use the plan as a guideline for his decision-making.

His parents now saw clearly how the decisions they were making right now would affect the future vision. They became aware of how achieving shorter-term goals would contribute to the success of the overall operation — and their son — in the future.

The family also had gotten a pretty clear idea of what the parents’ estate plan would need to accomplish.

They planned to begin working with a legacy adviser and an ag estate planning attorney to figure out the “how” for their estate plan. They already had figured out much of the “why” behind it.