by Chas Bonner
The $64,000 question:
U.S. farmers are aging, with average farmers over 57 years old, and now they are facing that question---probably the biggest of their careers. Do we sell the farm that has been in our family for generations, do we sell part of it to liquefy, do we rent out to professional managers, or do we let our “un-tested” children take over?
First, remember one thing: If you are faced with that decision, consider yourself lucky. Most are merely faced with the decision of retirement and having nothing to sell, plus wondering when their Social Security will run out.
Farming and ranching are usually occupations that chew up capital, leaving owners cash-poor and asset-rich. Therefore, the necessity of an exit strategy---the subject of our blog a few months ago. Our best advice would be to consider this early, looking at absolutely all aspects of the decision. We have all heard the maxim that “timing is everything,” and a farm sale decision is a critical timing question. My 20 year history in the merger/acquisition business demonstrated that maxim in spades: Out of many businesses sold over 20 years, 95% were over their peak; owners simply waited too long to pull the trigger. Perhaps that was evidence of another maxim: “Pigs get fat, but hogs get slaughtered.” In short, plan your work, then work your plan, even if 20 years away.
Another opportunity that is a combination of selling and holding, AND avoids the “cash-poor, land-rich” dichotomy is to sell part of the farm, perhaps to family members or to other farmers or to farming organizations. That strategy would enable you to liquefy your holdings, maintain input into direction, and provide an exit when too old to farm.
Finally, and perhaps most important, consider market context. If everyone is buying, now is the time to sell, partially sell, or rent. If on the other hand, everyone is selling, consider a buy. That is “industry timing” context. Next, if you see industry sale timing coming, prepare your farm to look like Grandma’s Apple Pie---“specific entity” context.
Don’t try to do this alone. There are countless services, attorneys, accountants, farm advisors who will provide valuable input.
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