As we talk about legacy plans to transition your farm business to the next generation, the conversation will eventually turn to risk management. Understanding the risk that your farm business faces, and taking prudent steps to manage these risks, is important work if you are serious about a successful transition. But what is risk, really?

Humans manage risk all the time, but we often don't think about it. When you look both ways before crossing the road or when you decide to slow down at a rural cross roads with 8-foot corn on all four corners, you have identified a potential hazard and taken action to reduce the chance you will come to harm.

Are you prepared with a plan to handle situations should something unexpected happen?

Some of these actions are automatic and obvious. But many times people take risks that they don't consider.

For example, consider Jason Pierre Paul and CJ Wilson, two NFL players, who each lost fingers over the July 4^th holiday weekend due to fireworks accidents. These players have the potential to earn millions of dollars based on their physical health and yet they took risks that have cost them fingers. Upon reflection, this was a horrible idea.

Of course, you would never be so foolish, but consider these questions:

• What happens to your business if the primary manager is disabled and can't work tomorrow? What if she is out for the rest of the year?

• What happens if your designated successor for the business quits today and starts a new venture?

• What happens to your business transition if the founding generation dies next week with no detailed estate and transition plan to provide continuity of ownership and continuity of leadership for the business? Who runs things? Who handles the money? Who inherits the assets? Who pays the taxes if any?

These are all real risks. If these situations come up without a plan in place, they can be devastating to your business transition. But they are also the sort of risk that many business owners take all the time without really thinking about it.

This is just one more example of why it's so important to have a business transition plan in place early and review it regularly. The risks involved are too great.

If this blog has got you thinking about your own situation, get in touch with my office ([email protected]).

The opinions of Rich Dunn are not necessarily those of Farm Futures or the Penton Farm Progress Group.

Important information