Building an exit strategy
During low cycles, farmers face many challenges which can lead to stress and anxiety about the future of the farm and the farm family. When the farm ceases to turn a profit and debt is piling up, it is time to examine what options are available to ease the burden. An exit plan gives the opportunity for the farm to harvest the maximum amount of value from an enterprise which is no longer meeting the farm’s goals.
An exit plan is a best management practice and an essential part of a business plan. Every farm and business should have one. It is a risk management tool and a strategy to ensure the farmer has control of the outcome. The plan sets the guidelines for when it is time to talk about making a change. Business, financial, and personal goals are used to determine the timing and method of exiting. The future of the farm and the farm family depends on having a good exit strategy.
A planned, graceful exit from either the farm or farm enterprise can be done in stages and on the farmer’s terms. Building this exit strategy can help identify additional opportunities and help determine what can be done with the land and facilities if an exit were to occur. It also allows the opportunity to define what will trigger the need to exit the enterprise and not necessarily the farm overall.
The first step to building the plan is to establish a team and bring the right people to the table. This team will identify the issues, prioritize them, and develop a plan of action. The team will also hold everyone accountable to make sure the work is getting done. Examples of people who should be involved include owners, investors, key employees, accountants, attorneys, lenders, unsecured creditors, and a facilitator. This group will differ from those at the table for production team meetings; however, production meetings should continue separately to maximize profit and minimize losses.
As part of the team, it is important for each member to participate when appropriate and to keep in mind what everyone is there for. A trained facilitator, such as an Extension agent, should be involved to ensure the meetings run smoothly, follow an agenda, accomplish necessary tasks, and develop an action plan.
There are a few tips to keep in mind to help these meetings run smoothly. It may take several meetings for folks to feel comfortable enough to accomplish the vision of where the farm is headed. Comfort takes time and honestly may never happen. That’s okay. These are hard topics to discuss. Communication is key. Remember silence is seen as acceptance, so it is important for everyone to get the opportunity to speak and contribute to the plan.
The next step to building a successful exit plan is goal setting. Start by having each partner or spouse from the farm create three individual goals. These goals should then be shared and used to create three to five family goals and three to five farm business goals. These goals will be the basis for the exit plan. When the farm is no longer meeting these goals, it is time to start initiating the exit.
After the goals for the farm and the family set, the plan should address the following questions. What is the trigger situation? What needs to change? Do you and your family still want to farm? Where do you want/need to be? How do you get there? This will look different for every farm. The team should be engaged in designing this plan to make sure it is realistic and achievable.
The plan should be written down and implemented. This is a guide to help a farmer navigate through a transition, and it should be evaluated along the way and revised as necessary. It does not have to be carved in stone; it’s okay to make a mistake and have to change it.
The final piece to successfully building and implementing an exit plan for the farmer is establishing and maintaining a support system. Change is not always easy. Exiting from the farm or farming enterprise is likely to be stressful and upsetting. It can lead folks to feeling like they are alone or that they have failed. An exit is not a failure; it is a smart business decision. Maintaining friendships and relationships in the community will help ease the transition into the next venture.
Farms should take the time to build a strategy for a planned, graceful exit where the maximum value is able to be harvested from exiting the enterprise. In order to do that, farmers and the agriculture professionals working with them should build a cohesive team, practice effective communication, set achievable goals, establish support systems, and implement and routinely evaluate the plan.
Stephanie Plaster is the UW-Extension Agriculture Educator for Ozaukee and Washington Counties