You may remember when we introduced our six-step exit planning process in a previous Progressive Dairy article in late 2023 (Figure 1).
Today, we are going to discuss step three, which is to identify the type of exiting owner you most resemble. Why does this matter? Because all succession and exit plans do not follow the same path, and appropriately so.
We have divided owners into four general categories that tend to have common traits. Each of these categories suggest a different set of possible exit paths that are more likely to match with your goals. It is quite common for farmers to ask us what other farmers are doing. By determining which category you best fit in, we can answer that question with more specificity, helping you and us learn from the decisions of others in similar positions.
Let’s look at each of these categories, and then we will discuss a tool that we use to help you and perhaps your partners plot yourselves on a graph.
The four types of exiting owners that we think about are:
- Get me out right away for the most money.
- Well-off but chooses to keep working – what else would I do?
- Stay and grow the farm/dairy to exit at a future date and higher value.
- Rich and ready to leave.
A description of each of these types of exiting owners is listed below to assist you with matching your current situation (Figure 2).
Get me out right away for the most money
This operator may not have fully prepared himself financially for his business exit. Yet he is highly motivated to stop working and to leave the business. Selling the business appears to be the best – and likely, the only – option available. The sale of the business includes this highly-motivated owner leaving and getting as much money at the "closing" as possible. This owner’s best option may be to enter a process for selling their business, which ideally will include many buyers who can enjoy "synergies" from acquiring this "target" company and who are competing with each other to buy it from the exiting owner. This owner will then pay the taxes and advisory fees and proceed into retirement, living off the income generated from their liquid investment portfolio.
Well-off but chooses to keep working – what else would I do?
This type of farmer is quite common. In this case, he and/or she have been rather diligent at saving for the future and have an eye toward retirement, but they are not emotionally ready to leave. They still enjoy working but are looking ahead to when work might be optional from a financial standpoint. There may be some pressure from home to spend more time with the family. In addition, there may be health issues causing him/her to begin to consider their own mortality. Or the idea of simply "taking some chips off the table" has a very nice ring to it after years of living with concentrated, illiquid wealth trapped in their farm and equipment.
Stay and grow the business to exit at a future date and higher value
It seems clear that this type of farmer needs – both financially and emotionally – to continue with their business for some time. And fortunately, it is what they prefer to be doing. Their mental readiness to exit is low, so even if they sold for top dollar, they would still want to work for a number of years going forward. In fact, this owner type may not technically qualify as an "exiting" owner by standard terms. However, every owner is an exiting owner if they are truly treating their business like an investment. Therefore, a number of options exist for an owner who needs to bolster/diversify his personal financial situation but would like to continue working. In fact, having a longer runway may bring more planning opportunities to the table than a farmer has if they want out tomorrow.
Rich and ready to leave
This category describes the operator who through some combination of hard work, good decision-making and a sprinkling of luck has amassed more than enough assets separate and apart from the farm that they could hand the keys to the tractor to the next generation and begin the next chapter of their life. Often in the agribusiness space, they want to transfer the business to the next generation while being mindful about minimizing income and estate taxes.
Reading through these, you likely have an idea which category may be the best fit for you. We use a tool called the Business Exit Readiness Report (BERI) to help clients assess where they are and to facilitate a conversation about their responses to 20 questions, which further helps develop their goals and objectives. We also have found that having spouses, business partners and sometimes children who are active in the business also complete it helps identify differences in each of their thoughts about an exit.
Identifying those differences early in the process is way better than having them bubble up when one is ready to pull the trigger on a transaction.
Congratulations on thinking about this and on your efforts to be a good steward for the operation that you have been shepherding along to this point.
To use the complimentary BERI tool, visit online. Your information will be kept confidential.
Mark Sherin is a registered representative of and offers securities and investment advisory services through Osaic FA Inc. (member SIPC). Osaic FA Inc. and its representatives do not offer tax or legal advice. Progressive Dairy is not affiliated with Osaic FA Inc. This article is provided for information purposes only. Readers should consult their own professional advisers for specific advice tailored to their needs. Information contained in this article may be subject to change without notice.
