What's Your Exit Strategy?
Have you ever considered your exit strategy when it comes to your farm or agricultural business (or even your future farm or agricultural business)? Perhaps breaking down these two keywords first will help to put into perspective what "exit strategy" really means from the ground up. According to the Merriam-Webster online dictionary, exit can be defined as "a departure from a stage" or "the act of going out or away," and strategy is "a careful plan or method" (Merriam-Webster 2022). Essentially, an exit strategy is also better known as a departure plan. Plans are important to set the right path to accomplish your life's goals. Working with the end goal in mind is ideal for yourself, your family, and your business, and can help avoid any hardships that can happen along the way or after you are gone.Â
Your business will transition in some form or another eventually. This is unavoidable, just like many other large and small, as well as positive and negative things in life (death and taxes are always certain, right?!). From this, the main question is, do you want to be involved in this transition process?
When considering your exit strategy and all associated plans like business, estate, and/or farm transition plans, it is critical to recognize three factors that will have a large effect on planning efforts: time, costs, and emotions. It is always important to recognize time. It is never too early to start planning your strategy! These plans can and should be updated routinely, as well as when notable events in life and throughout the business occur. Working with legal professionals such as accountants, attorneys, and other trusted advisors can help to make sure that plans are accurate and adequate but also associated with costs. Communication with family and/or other business partners will likely lead to an emotional journey (which can be negative or positive depending on how communication is carried out) in planning and should be held as openly and as frequently as possible to work towards your ultimate goals in satisfying everyone involved. Managing time, costs, and emotions efficiently with the right resources and attitude will play a major role in the success of an exit strategy that is best for you.
So, from all of this background, what are the true exit strategy options? The options include Retire, Change, Heritage/Legacy, or Discontinue. The sections below will list basic points and provide questions for you to consider while trying to formulate your exit strategy.
Exit Strategy Options
Retire
It is important to recognize that retirement can be an option for farmers/agricultural business people! Some questions to consider with retirement: Have you thought about when and at what age you want to retire? Do you want to continue living in your same house or community? Have you considered your health care, both current and long-term? How will you pay your bills? Will you need or want to work part-time? To whom will you leave your estate and other valuable assets? Overall, how do you plan to fund retirement? Retirement can be a great way to live out the rest of your life with loved ones.
Change
Perhaps taking a different path with the business by evaluating the current situation is an option toward end goals. Large or small changes can be made that can impact you and the business significantly or not at all. Some questions to consider with change: Where do you want to be? What are the alternatives or other options? How will you apply and monitor changes? What are the overall risks? Change can allow you and your business to move in a different direction in life and experience new and exciting things.
Heritage/Legacy
Passing the farm business onto the next generation through succession is certainly an option. This option is probably the most favorable option for a family business, but it may or may not always be the right option depending on your situation. Family, age, status, and other power dynamics can play largely into success, as well as a "fair vs. equal" mentality and practicality. Some questions to consider with heritage/legacy: Are you ready for a partner? Will you allow the next generation to make decisions, and are they dedicated? Are you open enough to share management responsibilities with your successor? Are there common goals? Is the business profitable and sustainable enough to pass on to the next generation and/or to support additional households? Establishing common ground between the current owner(s) and potential successor(s) can be very rewarding for the future.
Discontinue
Quitting or selling the business may not be the most favorable option, but it can lead to better opportunities for you, your family, your partners, or even an outside person who can potentially buy the business. Perhaps this could lead you into being connected to your business or agriculture in general but from the outside or opposite side of where you currently are. Some considerations with discontinuing: There can be tax implications of liquidation. There can be non-owner opportunities. There can be non-farm opportunities. There can be non-agriculture opportunities. Some questions to consider with discontinuing: How will this make you (and potentially others) feel? Can you make a clean break? Would a phase-out be better? What if you are forced to exit? Even though decisions can be hard in this realm, they might be the best for you and all of those around you.
Developing your Exit Strategy can be Stressful
Regardless of which exit strategy option, or combination of strategies you might choose to pursue for your farm or agricultural business, it is always important to keep the mental health of yourself and those around you in positive check. There are many modes of information and resources that exist for people in agriculture who are experiencing stress on local, statewide, and national levels. Penn State Extension has a Farm Stress team that is comprised of educators from multiple disciplines who understand and support the farming community and can be contacted for further information. In addition, Pennsylvania has an exclusive AgriStress Helpline that is available 24/7 at 833-897-AGRI (2474). Remember that it is always okay to seek and ask for help when you are struggling in any situation, especially with exit strategy planning.
Overall Considerations
Hopefully, by now you have some ideas on the exit strategy planning options (Retire, Change, Heritage/Legacy, or Discontinue) and factors that impact these plans, such as time, costs, and emotions. The last questions to consider are: What do you want to happen? How do you want it to happen? Who do you want to be involved with? Developing your exit strategy may not always be a fun process in life, but it doesn't have to be taken negatively. There can be great opportunities for you, your family, your partners, or anyone else who may be related to the farm or agricultural business. The time is now to start getting written exit strategy plans together, along with gathering all your resources and communicating with all parties that need to be involved in this entire process!
Further Resources on this Topic
Penn State Extension currently has resources available online with Transition and Succession Planning. There are two online courses on business transitions and exiting the business, as well as articles and recorded and upcoming webinars.
For more information, contact any of the Farm Transition Team members below:
- Samantha Gehrett - smr5319@psu.edu
- Paula Ledney - pay103@psu.edu
This article, including its text, graphics, and images ("Content"), is for educational purposes only and to provide information to the public. It is not intended as legal advice. We recommend speaking with legal and real estate professionals about your personal situations related to farm transition and business planning.
References
Merriam-Webster 2022: "Exit." Merriam-Webster.com Dictionary, Merriam-Webster. Accessed 2022.
Merriam-Webster 2022: "Strategy." Merriam-Webster.com Dictionary, Merriam-Webster. Accessed 2022.
Scharmer, L., Schaunaman, C., Wuot, W., Grueneich, R., & Lemer, J. (2017). Design Your Succession Plan. Fargo, ND: North Dakota State University Extension.
For More Information
Penn State Extension Farm Transition & Succession Planning
