The Food and Agriculture industry is experiencing many challenges:
- Commodity prices are lower due to higher inventories, which impacts demand for products and services from all agribusinesses that serve row crop farmers.
- In the short-term, trade negotiations are impacting the industry as well, causing much uncertainty.
- Stable, if not rising markets, provide much better conditions for owners to exit their agribusinesses.
- Lastly, regulations and consumers are demanding more information about the origin of raw materials and the health benefits of any finished products. For example, U.S. pork producers benefited from infected pork supplies in China, increasing demand for domestic pork. Long-term, new technologies will benefit agriculture operating efficiencies and provide the information that managers need to better manage the agribusiness and supply chain. It also helps processors that must comply with food safety and traceability regulations.
Regardless of the current business climate conditions, food and agriculture businesses and farmers alike must continue to plan for business succession.
Preparing Your Food and Agriculture Business for Succession
Young entrepreneurs experiencing fast-paced growth in their agribusiness, as well as those closer to retirement, must consider their level of preparedness. Younger entrepreneurs should focus their planning on entity structure and tax efficiency, continuity in the event of an expected event, mitigating business risk and building business value. The focus is to always be prepared, regardless of age of owners or maturity of business. For entrepreneurs, being prepared will be rewarded in the event they are approached to be acquired.
In addition to preparedness, business owners reaching their twilight years should focus on the exit path, timing and what each owners’ plan is in retirement. This in addition to a rigorous process your succession plan consultant would follow to ensure the business owners are prepared.
Whether there is a planned sale of the business to internal team members or to a strategic or financial buyer, the leadership team of the future must be developed and retained. The future cash flow of any business is very dependent on the ability of the management team to preserve and grow the business. But they also must be prepared to pivot when market conditions change.
The availability of management talent is one of the challenges we see in the industry, and those agribusinesses that offer the best opportunity should prevail in acquiring and retaining talent, allowing the business to transition.
This is separate and distinct from the transition of ownership.
For those business owners that are considering a planned exit in 5-10 years, the time is now to start mapping out a plan and a path. The transition of ownership is focused on the disposal of our ownership interests. Preparing the business for transition is a process that often takes several months to several years.
Eliminating business risk also takes time. Planning for and implementing a plan to dispose of our ownership interests is an additional time investment. Many times, we adjust this plan several times with business owners due to unforeseen developments. For example, we may expect to transition the business to an internal key employee. Many times, when the key employee is faced with this critical decision and all the risks and rewards that accompany that decision, they decide against the purchase of ownership interest. At this point, we are forced to adjust our plans and consider multiple options before we land on a viable solution.
Implementing a plan, for the expected, and for the unexpected exit from a business, should be a priority for all business owners, regardless of their age. Absence of a documented plan is a business risk. Secondly, planning takes time. It takes time to work through difficult decisions and to implement the necessary resources. Business succession can create a strain on capital. More time can reduce that strain. Business succession planning is good business strategy. Start today.