End of Year Consideration- Generational Transfer
As 2022 draws to a close, we are coming up to my two favorite days of the year. Christmas for all the obvious and typical reasons, and January 1, or as I like to call it, Balance Sheet Day. Yes, it’s that time of year when you freshen up that balance sheet, compare year over year changes and complete accrual adjustments. It might also be the time of year to look hard into the mirror after realizing maybe your cost of family living isn’t as low as you convinced yourself it was.
The end of the year encourages us all to take a step back and look at the broader picture. One of the biggest items to consider is the generational transfer of the business. Generational transfers of businesses are tough, no matter the industry. For pork producers, the connection to the pigs you raise and the land you care for makes it even more personal. Not just the simple transfer of assets, but also the potential transfer of management. Of which, the transfer of decision making tends to be the hardest transfer of all.
Every operation is unique and every family situation is different. When you look at your operation, try not to look at it as it is today, but also consider where it will be in the next 3-5 years. What will the transfer of assets look like then? No one knows the future, or where tax rates might go (arguably higher), but at least consider the potential for change as you journey through this process. The best thing you can do is to meet with an advisor to ensure you have a plan to transfer the assets of the business. It takes time, and doesn’t happen overnight. It took a lot of time to build your farming operation to where it is today. The old adage is it takes a person 10 years to get into farming, and 10 to get out. Now we can debate the timeline, but the point is neither is something that happens quickly.
The hardest part to manage through is the generational family workplace of an operation. Is the next generation involved in the business today? Are the roles and responsivities define? Even if they are they still riding in trikes in the yard, think about how you can bring them into watching and learning the business. Align each individuals’ strengths and passions to their job. What are the ways to bring the next generation into a place where they can observe and even participate in the management decisions? Consider, for example, bringing in the next generation to your hedging strategy. This can help create a backup and redundancy in the operation which is all too often lacking in this area. And let’s not forget that ownership doesn’t always equate to management. The next generation can retain ownership, help out around the farm, while having an off-farm job they love. Often these folks bring a different perspective that comes from being outside of the business.
Despite all of the margin calls, health challenges, and other external factors, most of the producers we work with will finish 2022 in the black. Even still, 2022 has taken a mental toll (especially since it followed 2021 and 2020!) It’s important to take a moment to reflect on 2022 and be thankful for the good things we have. Many of us work with family every day, in the business they love, and the best country on earth to do it! My family has been reminded of this fact this year, as we have seen friends close to us lose loved members of their family. It really does put things in perspective. We might not always get along, but at the end of the day, it’s still family, and we are still in it together.
Yes, I look forward to completing my balance sheet this year, like I always do on January 1. Not because it is anything to brag about (it’s definitely not), but because I will be doing it surrounded by my family and loved ones, while watching my favorite Christmas Movie. Die Hard.
Merry Christmas, Happy New year, and have a wonderful, happy, healthy, and profitable 2023.
Nic Rue is Vice President, Swine Lending at Compeer Financial. For more swine industry insights check out Compeer.com