Transition planning: where to start

Shay: Welcome back everyone to another episode of the Ag View Pitch. Today you have Shay Foulk with Mike Downey, and Mike, you are with NextGen Ag Advocates, toughing out a winter storm in Coralville, Iowa right now. How are you getting along?

Mike

Downey: Yes, down here at the Farm Futures Summit, the crowd has been, you know, certainly impacted but still respectable showing, given the snowstorm that just came through yesterday.

Shay: Those Midwesterners are pretty tough, so they'll power through.

Mike

Downey: That's right. And one of the speakers this morning said that we actually want a really, really painful winter because that'll help us for setting up for a more enjoyable summer next year.

Shay: Hmm. Yeah, it's kind of interesting looking at the drought monitors too. Just interesting environment headed into 2024. I think the only thing I know for certain in 2024 is that I don't know anything. So You know, every year is different and looking forward to the challenges here. But Mike, I thought that I'd maybe have you give a brief background on just kind of who you are, what you do, where you're from, and then I'm going to dive into some specific questions on maybe best practices around your work and go from there.

Mike

Downey: You bet. Well, NextGen Ag Advocates was actually founded by two farmers in Iowa here. And just with like-minded concerns over the ag industry and the consolidation occurring. NextGen, we actually work a lot with transitions with non-family type of transitions and then also in family. And so that's just a little bit of background of NextGen. We're just consultants similar to the role that you play as well. And I'm also own and operate a small family farm with my wife and family and help on her family farm where she grew up in the fall when I slow down a bit.

Shay: Yeah, no, that's great. And, uh, you know, for the listeners out there, Mike mentioned that we're, we're kind of in the same, in the same space on the, on the consulting and transition and things like that. And I think there's a lot of power and benefit to you know, conversations that you and I have had, Mike, of just rising tide kind of floats all ships in this industry. And that's why I wanted to reach out and just see, you know, what you're seeing and maybe provide some perspective to the listeners here. So they're not just hearing it from Chris and I, that there's some— there are some good best practices out there for things like transition planning. It's not a one-size-fits-all, and you also have to to find the right person to work with. And I know, Mike, a lot of, a lot of clients of yours, everybody speaks very highly of the work that you guys do at NextGen Ag Advocates.

And just, you know, would start by saying thank you for what you do on that end. But wanted to, wanted to look at the year ahead. You know, you kind of made the comment here offline of maybe not much different than what we've seen in the past, but more of the same, and that there's need for you know, help and structure and communication and planning when it comes to the transition side of things. So I was wondering if you could maybe speak to the top, you know, 3 or 4 things that you think are really relevant for someone that may be in the transition phase of their lives or what they should be considering as they move forward.

Mike

Downey: Sure. You know, I think I'm, you know, I'm starting to see more and more folks that are ready to have the conversation. And they don't know always where to go or where to start. And I think there's a huge need out there. That's why, quite frankly, I appreciate the opportunity. I think there could be probably more collaboration among farm advisors like ourselves out there in the industry, because that is one thing I think that's been identified. One of the most common questions I get from farmers or landowners is, do you have a good a farm CPA or a good farm attorney that specializes in agriculture. And there's, you know, we talk a lot about needing to find more young farmers and producers to come back. Well, that's an issue in the practitioner world too.

And so, you know, I think a lot of folks that want to start that conversation and just a matter of helping them, you know, start asking the right questions and guiding them through that process.

Shay: Now I say, I'd like your take on this, I often tell people that transition planning is the hardest thing that most operations have to do once in their life and they want to get it right. Do you agree with that statement or do you think that it is one of the most difficult things that farm operations face in their careers?

Mike

Downey: Yeah, I would definitely agree to that. It's also, you be one of the easiest things to defer and kick the can down the road for that reason, or because, you know, it's just a conversation that's difficult to have. You know, that's— I've not yet— I've yet to meet a farmer that hasn't told me they want to see the farm passed down to the next generation, stay in the family. But as you know, it's such a difficult subject for a lot of them to talk about. And, but certainly I think there's a need once we put a plan together, I encourage folks, you know, we don't have to figure this all out in one sitting. You know, let's take this at a step at a time. It could be a multi-phase type transition over several years. And that sometimes helps folks to just bite off a little bit as we go.

Shay: And if you have some generalizations here, Mike, I'm just kind of curious of, you know, what would you say maybe the average age range of, you know, transition partners that you work with is that you're working with? And I'm going to preface this real quick before you answer. You know, there's a conversation out there right now about historically people have retired in that 60, 65, 70. And we're starting to see, or have seen recently, a lot more farmers that want to continue to farm later into life. And whether that's because they're deferring the transition plan, or they're just enjoying what they're doing, they need the income, or the equipment has just made it easier to do. You know, I don't think there's anything wrong with them wanting to continue to do that. But how has that kind of impacted where we're at as far as the age of the transition?

And then I'd go back to my original question of what is, you know, what's maybe the average age range that you work with, Mike?

Mike

Downey: Sure. I was just, uh, kind of joking a little bit with some folks yesterday that I was meeting with that, um, they were in their, their 50s, and I, I kind of joke with them that they're, they're young. And, uh, um, but, you know, you know, we talked about before in prior discussions about the sandwich generation, and because people are living longer You know, there's a lot of folks that we work with even in their 70s that, you know, they're just getting an opportunity to take over management or even ownership at that point. That just because folks are living longer and farming longer, they're sort of getting sandwiched out of their opportunity. And so we're actually seeing a lot of transition plans even skip over to to the next generation that might be in their 30s or 40s.

Shay: And that's about a full conversation to have. I mean, we've worked with a few of those. I think you probably encounter that a bit more on your side. How do you handle that, or how do you work through that challenge? Because I know a lot of people, that's, that's an uncomfortable conversation.

Mike

Downey: Yeah, and when we in some cases have 3, 4 different generations involved every generation communicates in a little different way, you know, and this communication barrier, and I would even say education barrier moving forward, is a big one that I think we really need. There's almost a responsibility for us to educate the next generation how to carry on the farm, to own it, to manage it, because if we don't take that opportunity now, where are they going to go get their help or their information from. And the concern I have for some family farms, the information and resources out there that they'll find maybe don't necessarily complement the long-term goals for that family farm. But I think, I think a multi-generational farm at peak performance, every generation has some involvement in decision-making, skin in the game, and communicating together. And that's—

Shay: I'm sure that you've also seen those are the ones that tend to, uh, have the greatest success, you know, to actually continuing forward and have the healthiest personal relationships, by the way, of getting along and wanting to be together at Thanksgiving and Christmas and enjoy hanging out with, you know, Grandma and Grandpa and Mom and Dad, you know, because they're they don't worry about the work issues as much. They can just enjoy being a family.

Mike

Downey: Absolutely. Yeah, I would definitely agree, you know, trying to put some separation between business and family and more and more, you know, treating the farm like a business, you know, to that regard.

Shay: So when I reach out to clients or, you know, someone reaches out to us rather for where to start on transition, there's a few directions, you know, once we do some fact-finding and figure out kind of what their needs are and how we can best help them. There's a few general starting points, but when you're working with someone on transition, what's maybe the top 1 or 2 things that you're like, hey, these are the questions that you need to ask, or these are the questions that you need to have answered as we get started in this process?

Mike

Downey: You know, a lot of folks will come in and they start asking questions about different things that we're using, and— or they're seeing others do LLCs and trusts and different things like that. But, um, I almost like to kind of pause and just take a step back and let's almost sort of begin with the end in mind. In a perfect world, what do you envision this— a successful transfer to be and look like? Then we can start brainstorming the different things to put in place to help us get there. And let's start talking, you know, through just some different questions, you know, who's who in your family, and, you know, what are the assets that should go to which parties in the family. And, you know, just looking at different assets too, you know, historically it's pretty common for family farms to get divided. At every generation.

But, you know, talking through, can we, can we continue to afford to do that to have a viable operation? And if we want to keep that land base together, you know, brainstorm the different structures that might be best for that situation to help, help do so.

Shay: I like that approach. We, we call it the perfect world scenario. You know, if you could paint a picture of what the perfect world looks like, your, your end goal, whatever the end state is there. How do you build a bridge from where you're at to there? You know, what are the steps along the way? And I think sometimes people have a rough idea of what they hope to accomplish, but when you put it out on paper and then start mapping out, okay, here's the timelines that correspond with that, and then what are the actions within that timeline, I think that's pretty important. Anything else maybe beyond that that you think is crucial kind of getting started or that the listeners might want to think about if they're in that situation?

Mike

Downey: Well, certainly, you know, my favorite part of the process is bringing everybody in, whether it's the partners of the operation, which could be family, could be even non-family partners, or the long-term, you know, if it's long-term assets like farmland, other other members of the family that may be off the farm. I like just bringing everybody in. Let's just have a— let's just talk about it now. Opportunity for everyone to ask questions. It's an opportunity for us to debunk a lot of common misconceptions there are out there about sort of the different tools that we're using. And for folks that are willing to kind of open it up, it just seems like it significantly decreases the chances of problems later.

Shay: What I think is interesting with that too is there's usually a fear of the unknown for all parties involved of, well, I don't know what our kids are going to think of this, or I don't know what mom and dad have in mind. And that fear of the unknown, or the, um, the lack of knowing, I guess, just not knowing the details tends to be sidestepped pretty easily when you get everybody in the room and realize that generally, I'd say most situations, everybody's in alignment or everybody feels good about the situation. It's just having that conversation, having a structured meeting, you know, whether with a facilitator like us or someone even just in the family that can facilitate that conversation, saying, hey, there's some important things that we need to talk about. Let's get together and have that conversation.

Mike

Downey: Yeah, and you brought up earlier about, you know, improving the family health and relationships. I've actually seen those actually lead on to better family relationships by just having those conversations, and the pent-up demand or worry about what's going to happen in this meeting is just Once we get through that, you know, it really can change the dynamics moving forward.

Shay: I'm going to ask you a specific question here. I sent you over a tool that I put together looking at, you know, long-term income and expense planning for the retiring generation because one thing that I often see is the senior partners not having a clear clear picture of what their needs are into retirement or not having a clear picture of what their cost of living is going to be. And that's one of those unknowns that kind of hangs as a cloud over their head. And until they put that on paper and get it written down or go through some sort of a planning process there with a certified financial planner or even just internally knowing that they're okay with budgets prepared, It can be a, it can be a big step. And I, I think once you can tackle that, a lot of the other stuff falls into place quickly. Have you addressed many of those conversations?

Is that something that you guys kind of do internally, or how do you work through some of that financial piece that's a bit more specific and sometimes can be a bit more uncomfortable for people to work through?

Mike

Downey: Yeah, and that was a great tool, by the way, that I recommend to all your listeners to help through that process. And we do have that conversation, probably don't go quite as detailed as you guys do, but where I see a big benefit of that is, you know, the other concern that we hear a lot is over, you know, we spent our whole farming career putting these farms together or carrying it on from the generation before us. You know, there's a big fear about losing it. And, you know, nursing home, other things that can go wrong.

And so, but a lot of times it's just good to— let's just understand what your income actually is, because I, you know, you think that's common sense, but I don't think a lot of people spend the time to actually sit down and just think through that, because more times than not, maybe you're, you know, essentially self-insured from those types of risks from the income you have. So we don't need to do some drastic things like giving the farm away, for example. So that kind of going through that process, understanding what your living needs are. A lot of folks, I know, although family living has increased or that quality of living has, as a general rule, those in the farm world are, you know, more frugal with their spending, you know, but just kind of walking through that process. If one or both of you were, heaven forbid, to have to go into a long-term care situation, what's that look like?

You know, what would your needs be if that were to occur?

Shay: Yeah, no, that's great advice. Any final comments on maybe that initial transition outreach that, you know, you deal with or that you anticipate is going to continue to be a question or challenge as we head through 2024 and beyond that you'd like to communicate to the listeners here, Mike?

Mike

Downey: We still see, you know, a trend. I think we're going to continue to see it in the future. You know, we talk about transition planning. There's always going to be in the family, one generation to the next, We're also seeing more and more transitions that we're working with between non-related, non-family successors, maybe that's going to transition into the farm business because, you know, they have children but they don't have children who farm, they're off the farm. And so we still see a continued trend of that in the future that, you know, and some of the same tools and strategies we're using for both apply.

But certainly when we look at that, if there's ways that we can transition to a young producer in our neighborhood to try to keep that operation, that farm that's being farmed in our community, that will just help, you know, with the big concern we have with consolidation over time. And do we need to go 2 or 3 counties away to find a renter, you you know, to take over the farm.

Shay: Yeah, that's, that's an interesting outlook. And I think there's benefits to the work that goes into transition with non-family members because there tends to be more of a degree of professionalism, I find. And I think it's actually a great opportunity for family member transitions to embrace that same type of professionalism. You know, as something that's similar between the two. Embrace that professionalism and discussion and having a plan in place, getting things written on paper, having clear, you know, operating or buy-sell agreements within the businesses. There's a lot of benefits to that outlook. And, you know, I would just encourage people that are maybe looking at a transition like that that's not with a family member.

We've seen so many of those, Mike, you and I, that have been successful and great for both parties and, you know, ended up being the right fit for the operation. So, you know, if there's fear or hesitancy out there around doing that, you know, for someone listening, or if you're the junior partner in a situation like that and, you know, need to reach out as a resource, you know, reach out to Mike and his team, reach out to us, reach out to someone because there's ways to work through that, I guess, is what I would say, Mike.

Mike

Downey: I've been asked this before, actually, about, you know, how much more difficult is it to work with these non-family, you know, transitions or successors. And actually, when I really think about it, it's more times than not, it's easier, because what you just said, there, there's less emotion and family dynamics involved. They're treating it more like a business. Type of transaction.

Shay: Yep.

Mike

Downey: Oh, that's great.

Shay: Before we wrap up here, I want to hit on, you know, another venture that you had talked about here earlier that I thought is pretty intriguing. And I'm not going to say the term right, so I'll let you kind of dive into it. But tell the listeners about what else you have going on from the off-farm investment side that they might be interested in.

Mike

Downey: It actually all ironically started here where I'm talking to you right now at the Farm Futures Summit here in Iowa City. A couple of years ago, I was asked to talk about maybe more of an outside-the-box topic of should farmers invest off the farm and the pros and cons and, you know, pros and cons of passive income. And I was really surprised how much that resonated with folks. And it still does today. And that is what prompted my wife and I to put together Farm Raised Capital. Which is just essentially a community that we've just tried to develop where, you know, maybe we go out and find these different opportunities and put all the information together and put that in, you know, in front of the folks that have signed up to become part of our investment community that might have an interest in diversifying.

You can actually self-direct parts of your retirement accounts, your IRAs, if for those that are interested in diversifying. Diversification has been the big buzzword actually from those that have kind of joined the community. Just, you know, but it's— I could go into a whole nother discussion about this, Shea, but it's just because everybody has different motives, whether it's they're done, they're done buying farmland at these higher prices, or they're not excited about the stock market. Like I wasn't. That's what originally got us into that probably 15 years ago.

Shay: So, yeah, no, that's, that's amazing. And I can imagine that you have all, all walks and all types that are interested in doing that. So maybe have you back on here for another podcast about that. If they want to learn more about Farm Raised Capital, how can they, how can they do that?

Mike

Downey: Like, sure. Yeah, we actually have a website. It's farmraisedcapital.com. Tons of resources there for folks. And again, I think it's not for everybody, but it is one that's resonated. And I think folks are interested, they just don't know, like kind of like we talked about earlier with transition planning, they just don't know where to start. Maybe they don't have the time to go find the different opportunities to invest together, invest in themselves. So, but having sort of a a platform to do that together with other folks from the ag community seems to be of interest for some.

Shay: Yeah, that's phenomenal. FarmRaiseCapital.com. And then if there's questions on, you know, transition planning, or if they're like, man, I think Mike would be a good fit for us, NextGen Ag Advocates, you know, someone wanted to reach out to you, what's the best way for them to get in contact with you or maybe establish a relationship there, Mike?

Mike

Downey: Yeah, we're actually revamping our Next Gen website to also build in more resources, and that website address is nextgenag.us.

Shay: Awesome, that's great. Well, Mike, I just want to, I want to say thank you for hopping on, but more importantly, for the ag community and those that are in the farm advising space, just thank you for what you're doing, and I think the messaging here behind us getting together is that sentiment of a rising tide floats all ships. And the more that we can work together in this space to help the farm operations and businesses and family farms that we work with is, is a good thing. So look forward to continuing to work alongside you in the community, Mike, and just best of luck to you guys as you head into '24 here.

Mike

Downey: Yeah, absolutely. And same to you. And thanks. Thanks again for having me on.

Shay: Yeah, thanks everyone for listening to another episode of the Ag View Pitch, and we will catch you next time.