A friend of mine helps equine veterinary practices learn how to become more profitable, and part of that is having and maintaining a plan for how the practice will transition to the next owner. I wanted to bring some of the relevant points he makes to his veterinary clients to farm/stable owners to help you determine where you are in your business preparation for transitioning to the next owner.
“YIKES!” You might say. “I’m never going to give up my farm to someone else until I’m dead!”
Eventually, a transition must be made. Whether from declining interest of you or your clients, or increasing age and inability to do all the work yourself, at some point you must turn over the reins to someone else.
Occasionally there will be situations that require this transition to happen much sooner than you would have thought: Illness or death of a spouse (especially one who made it financially possible for you to own/run the farm); divorce (with the same scenario as above); your own illness or injury; changes in zoning; lawsuit; natural disaster (tornado, flood, fire, earthquake, landslide, etc.); etc., etc., etc.
Planning for the transition to the next owner to you might mean an estate to your children or grandchildren after your death. But what if you want to reduce or eliminate the barn chores from your daily life as you get older? What if you want to go south for the winter or west for the summer? What if you decided that while you are still able, you want to spend time with your own horses rather than spending all your time caring for other peoples’ horses?
Is your farm an investment and a business, or just a place to live that you share with others? Some of those answers are legal (with tax implications), and others are personal.
Good Business Means More Options
If you have run your business well and it is profitable, you will have more options when you decide it is time for you to step away from the daily management of the farm or stable.
If you have maintained the property and kept it up-to-date, it will be more valuable, again increasing your options of what to do next.
A profitable, well-maintained equine business could be sold outright, leased, handed over to another to manage the daily operation, or some mix of options.
Following are some questions adapted from Dr. Jim Guenther's Strategic Veterinary Consulting to help you evaluate where you are with your equine business.
Which one best describes your revenue and gross profits over the last five years?
- Improved every year
- Improved overall, but not every year
- Remained steady
- They have gone down
How stable has the equine market been in your area over the last five years?
- Stable and has gown every year for all our products and services
- Our market has grown over, but not every year
- Our market has remained constant, but no real growth
- Our market has been erratic, with some segments losing ground
- The equine market has shrunk overall
How has your business done in your market over the last five years?
- Our business has increased every year
- Our business has gone up two or more years
- Our business has remained the same
- Our business has been erratic
- Our business has gone down steadily
What percentage of your client base has been with you 3 or more years?
- 80% or more
- 20% or less
What best describes your position in your market?
- We are clearly the dominate farm/stable and competition is decreasing
- We share that dominance with another competitor
- A handful control of barns/stables control 80% of the market
- Competition has been increasing
- Competition has been increasing and our market share has been decreasing
How good are you are handling the finances of your business?
- We know and use financial statements to manage our business
- We understand financial statements, but review them infrequently
- We rely on someone else to review financial statements and advise us
- We rely on the farm/stable checkbook for all of financial information
Which best describes your plan to transition your farm/stable to the next generation/owner?
- We have a Transition Plan for exiting the business and continually update the plan
- We have started the process and are meeting with a financial planner
- We think about it, but we just have not had the time to start the process
- We believe that when the time is right we will sell the business and that is our plan
- We plan to work until we have to give up, then we will consider some type of plan
The bad news is that most farms/stables do not have business or transition plans. The good news is that now is that it’s never too late to start planning! Discuss your equine business with your CPA or financial advisor to ensure you are starting your plan properly, then review the plan at least annually to ensure that your plan can change as your situation does.