How to transition the farm is a hard discussion but one that must take place

Transition planning is different for every family, but don't think that the farm transition will just happen. You must make deliberate decisions on how the family business will pass from one generation to the next.

Yet, 47% of family business owners expecting to retire in the next five years DO NOT have a successor, according to source.org.

That's the challenge Carroll and Kathy Hoksbergen faced when they decided it was time to transition out of farming. Because their three children had pursued careers outside of agriculture and had advanced to the point where taking over the farm was not in their future, the couple knew they would have to reach outside their family to pass the farm on.

A Taxing Journey

The Hoksbergens journey began in January 2019. From the onset, the couple were determined to help committed, ambitious young people take over their Iowa row crop and hog operation.

"Since a large percentage of Iowa farmland is owned by people over 75 or owned by impersonal corporations, we wanted to get our beloved land in the hands of someone with young blood, a passion to farm, and the family support to make it happen," says Kathy Hoksbergen. "Once we made that very difficult decision and shared it with our family, it was time to take action."

An equipment sale was schedule. The farm was appraised, and a price was set. Kathy created a website, postcards were printed and distributed, and ads were taken out in magazines.

"It wasn't long before interest began to roll in and it became real," Kathy says. "That's also when the challenges started."

The couple knew financing was a major hurdle for any young farmer, and it quickly became the main challenge.

"Several interested individuals came and went because they couldn't come up with funding. The wind started coming out of our sails. Was this even going to be possible? Did we have to sell out to an outside investor? How long were we going to stick to our guns to try to transition to an aspiring farmer? It was a challenge to keep our heads clear as we worked through so many scenarios, numbers, and disappointments," Kathy says.

Then the couple became aware of two young brothers, Justin and Jay Boot, who lived just 20 miles away. The Hokbergens interviewed them and realized the Boots possessed the same dreams and values as they did and wanted a chance to create a legacy of their own.

"They were educated, hardworking, experienced, and as importantly, had solid multi-generational farm family support," Carroll says. "But that was just the first step. It was a joy but also a challenge as we worked with them through the process of securing loans."

The Boots were both eligible for the FSA Beginning Farmer loan program, so the Hoksbergens walked alongside them through the long and difficult process.

"This was a trying time for them and, consequently, a trying time for us. It seemed like federal and state beginning farmer loan programs just didn't work well together and other lenders were just dubious. It took abundant patience and forbearance during this time," Carroll says.

The four walked through a lot of false starts and stops, suspending the pursuit of the sale during the planting season, resuming it again, and having faith that it would happen.

"Trying to stay on track with this whole process was difficult, but we did learn some valuable keys to the process as the months ticked by," Carroll says. "Number one was key communications open with mutual respect. You also need to nurture relationships with good humor and patience and not to give up hope."

Thinking Outside the Box

As resistance from lenders came in, the Hoksbergens knew they would have to think outside the box to make the sale happen. While both brothers eventually qualified for Federal Beginning Farmer Loans, the amount wasn't enough to cover the purchase price, which had been negotiated down.

"Even if we had a desire to sell it all, we had to reconsider the terms of the sale," Kathy says. "We ended up keeping our money in the hog operation and holding the contract for one of the brothers to purchase it over a 20-year period. We knew this whole process had to be a win-win. We also knew that we might not get top dollar, but we realized that winning isn't all about the money."

A year after the Hoksbergens journey began, the sale of their farm was completed. After this experience, the couple have learned a few things about winning.

Winning is having their farm legacy perpetuated by like-minded individuals who care about the land.

Winning is developing new friendships. "Indeed, almost a family-like relationship," Kathy says.

Winning is being able to go back and help on the farm when needed.

Winning is taking walks on the land and fishing in the ponds that have been fished by their family for generations.

"And finally, winning is holding the newborn baby of one of the new owners and realizing that this little man will grow up with new and beautiful memories of the place we once called home, as his parents seek to begin their own farm legacy," Kathy says.

Each Situation is Unique

Passing the farm to the next generation is a complex process, and every situation has its own set of challenges.

As manager of the Beginning Farmer Center at Iowa State University, Kitt Tovar Jensen says some of the top challenges they see for beginning farmers focuses on two areas – finding land and securing financing.

"It can be difficult to be prioritized as either a buyer or a renter when you are a young person because you have limited capital or are new to an area, making it very hard to find land," Tovar Jensen says. "A beginning farmer must also navigate through who handles real estate and operating loans, so he knows where he can obtain financing and what his options are. Once you make these connections, you must ensure you understand the lender's terms because it is vital that they understand their repayment ability."

As you work through the process of transitioning the farm to the next generation, transparency and open communication are also important.

When it comes to a beginning farmer making connections with a non-family member to rent or a buy a farm, Tovar Jensen says it is important to put whatever you agree on in writing, so both parties understand what they're getting into, and nobody is accidentally reading between the lines.

"When working with your family, communication is even more important. Take notes at family meetings, so you ensure everyone is on the same page," she says. "I always also encourage people to put things in writing, so everyone knows what they agreed to. Unfortunately, we see court cases and family disputes because children – both on-farm and off-farm – are taken by surprise when a parent passes away and the contents of the will come out. Even though these are uncomfortable conversations to have with your family, it's very selfless to have a plan and to talk about it. Death and finances are taboo topics, but having that communication with your family, whether they are farming or not, is very important."

One of the many questions Tovar Jensen fields from beginning farmers is 'How do I get started?' She tries to encourage beginning farmers to somehow get a foot in the door, whatever that looks like.

"And there's no one size fits all blueprint on how to be successful," she says. "We encourage beginning farmers to think outside the box, be open to innovation and different practices that might work."

Tovar Jensen also encourages beginning farmers to consider an off-farm job as well. "If you don't have a leg up or some type of support, it's vital that you get an off-farm job that can supply income to ensure the operation cash flows right away. The off-farm job can also provide health insurance," she says.

Even if you do have that leg up, Tovar Jensen adds that getting an off-farm job or gaining experience away from the family operation or completing an advanced degree can be beneficial.

"I've worked with these very ambitious, hardworking young folks who want to get out there and get going, but sometimes you need to prove your worth a little bit before you get the keys to the kingdom," she says.

Tovar Jensen says that if you're not sure where to turn, a good place to start is with your local state or county Extension office. She also suggests reaching out to your college's career services office. "They may be able to connect you with the right alumni or the right businesses," she says.

Beginning farmers should also get to know their local FSA office as well as their local banker. "These people are going to be able to answer your specific questions about your situation," Tovar Jensen says.

The Center is also conducting a national Farmer Needs Assessment survey to determine what challenges or obstacles farmers of all stages face. Once the results are tabulated, the Center will then determine how they can help by providing the resources necessary to address those issues. You can take the survey by scanning the QR code below or by visiting go.iastate.ed/BFCSURVEY.