The Higher ED Blog: Succession Planning in 5 Easy Steps for Canada’s Farming Industry
Alison Earls / March 13, 2017
Succession planning is a hot topic in rural economic development, and a growing concern for its communities. Canada’s farming sector in particular will face unique hurdles in the coming years. A report by Statistics Canada released sobering figures that hint at the sector’s potential decline: The average age of farmers is increasing, while fewer young farmers are joining the profession. In addition to this, fewer acres of farmland are being used. Ensuring that your region’s farms are preparing for a coming ownership transfer can not only help the farmers and their successors, but also ensure the sustainability of the regional economy.
Succession planning is the process of identifying and developing potential successors for key positions in an organization. When succession planning, you are developing a strategy for a business or organization that determines who will take over a leadership position once the current owner or manager decides to retire. This process can also often include training the successor to ensure they have the appropriate skills to assume this role.
Succession planning is increasingly being understood as a crucial part of owning a business, claims Ellen Schall of New York University:
- It provides financial security for the business owner
- It ensures the longevity of the business
- It allows the business owner to leave a legacy.
Step 1: Start early
It is never too early to start succession planning: establishing succession plans can take up to 10 years to complete. The sooner they start to identify when they wish to retire and who their potential successors are, the more time they will have to make a plan and transfer ownership before they leave the workforce. While it’s also never too late to plan for succession, they should begin to explore their options as soon as possible, not only to establish a plan but have enough time to carry it out.
Step Two: Hire some advisors
The next step is to hire some advisors to help facilitate the process. It may be useful for farmers to consult with a lawyer, a business advisor, a succession facilitator and an accountant to help the transition process. Business and financial advisors are particularly useful to meet with, as they can provide an outside perspective and help farm owners choose a successor without bias. This is especially important when farmers intend on passing the business to a family member, as they may be too close to the situation to accurately assess their family member’s capacity to run the company. Hiring a financial advisor is also recommended, as they can fairly assess the business’ value and assets. Advisors have the specialized skills a farm owner may lack to help them better prepare for retirement.
Step Three: Open the lines of communication
Regardless of whether their chosen successor is a family member, communicating with their loved ones that they wish to retire is important. If choosing a successor within the family, it is even more important to open up the lines of communication early to avoid familial conflict. If multiple family members wish to take over the business, they should let each individual explain why they would be a suitable successor. Even if not all candidates are chosen, the unsuccessful candidates will feel as though they have been heard before a decision is made. A noteworthy trend in succession planning for small- and medium-sized businesses, including farms, is that of selling the company to a group of people who then run it as a cooperative business.
Step Four: Choose a successor
The next step is to choose a successor. If the owner chooses someone outside of the family, consulting a business advisor may be useful during the selection process. They can help choose a successor whose vision of the company aligns with its existing one, making the ownership transfer less contentious. Vetting possible candidates is encouraged, as they will be able to gain a better understanding of what these candidates are planning to do with their company.
Step Five: Make a plan, and stick to it
Once a successor is chosen, it is time for the farmer to begin the transition process. Farmers are advised to write down their plan. Often this plan begins with a mentorship process to ensure the successor is fully aware of the duties and daily responsibilities of owning a farm. Creating this mentorship process is important for the long-term success of the farm, as individuals taking over will be prepared and have the capacity to effectively run the organization. The farmer should also establish a timeline that outlines the steps towards transition, and clearly indicates when the owner will be retiring—farmers can have a hard time handing over the reins!
Rural economic development professionals need to be aware that the future of farming economies depends on farmers developing succession plans. As economic developers, acknowledging this challenge and being prepared to advise farmers on how to start succession planning is a huge asset. If this article put succession planning on your radar and you would like to learn more about the process the Ontario Ministry of Agriculture, Food and Rural Affairs as well as Farm Management Canada can provide you with more information. In rural communities, making succession planning a priority today will ensure that agriculture and farming remain a strong sector for decades to come.
About the author
Alison Earls is a Masters candidate of Economic Development and Innovation at the University of Waterloo and has a BA in English from Western University. Her areas of study include economic development in rural and remote regions, with a specification in agriculture. In the past, Alison has been employed with South Central Ontario Region, a regional economic development corporation located in south western Ontario, where she practised rural economic development. Alison is currently employed as a research assistant with Laurier University and Food: Locally EmbeddeD Globally Engaged (FLEdGE), where she is assisting with research on farm cooperatives in Ontario.
About the series
Higher ED: Insights for the Next Economy is a platform for students, guest speakers, staff and faculty of the University of Waterloo’s professional and graduate economic development programs to share knowledge with the field at large. The series takes works destined for an academic audience and reworks them into a fresh, easy-to-digest blog article.
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