Top Crop Manager

A different approach to succession

October 17, 2019  By Top Crop Manager

Every succession story is different, but something can be learned from each one.

There are more articles about succession planning than there are succession plans in place.
“There’s so much talk about succession, [and articles about] ‘here’s what to do’ – but it’s not working,” begins Anita Burnett, explaining the amount of discussion around succession planning hasn’t seemed to move the needle on encouraging formal transition plans. “I think the mindset has to change to [doing] some business and some corporation structure.”

Burnett is a part of Burnett Farms, a cash crop operation in Belwood, Ont., that also does customer service for seed sales, chemical fertilizer applications and custom work. But the operation wasn’t always this diversified, which is why Burnett encourages the next generation to start succession early and secure some ownership in the operation’s growth from the beginning.

The beginning

Burnett was born and raised in Mississauga, Ont., and didn’t come from an agricultural background, but somehow knew it would be in her future. Despite being a city girl, she shares how she never fully understood why her family wouldn’t sell the house in Mississauga and move to a farm.

She studied criminology and owned a photography business before meeting her husband and marrying him five years later, completing the agricultural side of the equation. He was born in to a farming family and always knew he wanted to become a farmer. After Burnett sold her first home, the pair bought a property in Belwood, Ont., and rented out the neighbouring farm to the home farm.

Burnett’s first day in the country will always be a memorable one. She shares how they moved to Belwood in the middle of harvest season and one of the busiest times of the year for the farm. Burnett remembers being left alone among a mountain of moving boxes in their new home while everyone helping left to finish harvest.

“It was a real shocker to me, [left with] all my pots and pans, and everything was still packed. [Before my husband headed out,] I was trying to be a tough girl saying, ‘Yeah, I can unpack everything . . . it’s all good. You can go back to work; I’ll order myself a pizza,” Burnett says.

“And [my husband] kind of kept the door safely in between us, and popped his head back in, and said, ‘There’s no pizza delivery in the country!’ and ran for the hills.”

After the initial shock of her new reality wore off, it wasn’t long before the couple were working together to build up the family operation. Both families – Burnett’s and her in-laws – farmed side-by-side in cash crop operations. Scales, elevator systems, bins, dryer systems, extra barns, sheds and storage were added to the home farm over time to make it what it is today.

Accounting for growth

A verbal succession plan with the husband’s family was in place that started when the couple started farming in Belwood in 1997, but nothing was formalized for nearly 20 years. With the help of a lawyer, accountant and succession advisor, the families began to formalize a transition plan in 2016.

“A lot of younger generations start and they think they have a game plan, but five years slip by, 10 years slip by, 20 years slip by, and then the plan starts taking shape and form. By then, there is 20 years of growth already accumulated on that home farm,” Burnett says.

Burnett says dealing with a larger operation makes for a more complex transition plan. She also says it’s helpful to get some plans on paper, because there is no legal obligation with verbal agreements.

Oftentimes, emotions and what-ifs come to play, and what’s fair varies across operations. Burnett notes that an equity freeze can be helpful when the next generation joins the operation. For example, if a farm business is valued at $2 million and the next generation begins farming, an equity freeze would freeze the business at its $2 million valuation. Any additional growth can be split among all the owners, including the next generation. Growth can be split 50-50, 60-40, or 70-30, whatever is determined to be fair. Therefore, as the years go by, equity is being accumulated by the next generation.

She encourages the incoming generation to “get their feet wet” and take a couple of years to get a better understanding of the operation before an equity freeze, if one does take place.

“Then, you work together as a family to build that operation. You build [the operation] so you have something for yourself, . . . [and] as the younger generation you really should not invest in property or business that you have zero ownership in.”

Some next-generation owners experience the transition process being stalled by current owners. The Ag Succession Survey revealed more succession conversations are initiated bottom-up, by the next generation, instead of by the current owners. Burnett says this is understandable, noting the older generation are giving up something, whether it be power, property or value. “The younger generations are the ones generally gaining in a succession plan.”

This giving up/gaining dynamic can complicate conversations or make one party less enthusiastic to come to the table. While understandable, Burnett mentions the importance of being able to put yourself in the other generation’s place and think about what you would do in that situation.

What would you do differently?

On a scale of one to 10, with 10 representing an excellent transition, Burnett ranks her own experience at a two or three. If she were to go through the succession process again, she would have started earlier and formalized some aspects sooner, such as having the next generation’s name on some of the farm’s growth.

“A tough conversation is going to be [just as] tough in 20 years, so let’s handle it now and not have it in the future,” she says.

Having a game plan and a way to track progress can make a difference in a transition plan, preventing procrastination and helping family members from feeling overwhelmed or lost.

For those looking for guidance now, Burnett shares one piece of advice:

“Start early. Start when you make the decision to come home and farm. I think that’s where it all has to begin: at the beginning. And be able to have a freeze in place, and have some growth [of the farm] that you have a share in.”

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