A thriving agribusiness is often the culmination of a life’s work. Selling or transferring a farm to a successor can be a complex process—for both parties. Beyond the financial aspects, there is usually an emotional component to consider. Let’s look at exactly what has to be done, how, and when.
In Canada, selling a farm property to one or more of your children is the most common type of transfer. When parents decide to pass their business on to the next generation, they are inevitably influenced by the human factor, which may trump financial considerations.
Ownership can be (and often is) transferred within the family by valuing assets below their market value. There are important factors to consider in these arrangements, like making sure all children are treated fairly, ensuring the sellers will have the retirement income they need, and planning the leadership transition.
A specialist can help you make sense of it all and walk you through the steps involved in transferring a business so you make calm, confident decisions.
One of your children may have a natural knack for farming. Even if none of their siblings show a similar interest, you should still consider the impact the transfer will have on other family members and key employees.
A farm often holds significant sentimental value for the whole family. Inheritance issues may arise. Be sure to talk to each child to figure out their needs and find appropriate solutions.
If more than one child wants to take over the farm business, it’s advisable that you:
You can sell your farm to a buyer outside your family—often called an “unrelated party.” Transactions between neighbours or immediate neighbours are common, especially when they have dedicated successors. It’s a way for them to expand their own farm business but keep things close to home. This type of transfer can generate synergies, with neighbours sharing machinery or labour to better leverage their assets or justify making new hires.
Here are some other tips to follow in this type of transaction:
Whether you’re selling your farm to one of your children, a neighbour, or someone else, there are a few things to consider if you want things to go smoothly.
The key is not to rush things, while making sure everything is moving forward efficiently.
Determine the fair market value of your agribusiness. It’s a good idea to use business assessors that specialize in the agriculture sector.
They will be able to put a market price on your property by determining the value of the land, buildings, and machinery plus the value of any quotas you may have.
Assess the business’s profitability and performance potential and your ability to build equity.
Agricultural producers are not usually diversified in their investments, and the vast majority of their retirement income will come from the sale of the farm. Make sure you’re not jeopardizing your retirement by helping your successors take over the farm.
Follow these steps:
A farm property can be worth millions. It’s highly likely that you’ll have to get a loan from a financial institution to make the purchase.
Pro tip: Most large Canadian banks and financial cooperatives have an agriculture department staffed with experts who can provide the support you need. They may be able to offer a certain amount of flexibility or make arrangements to reduce your financial burden as you pay off the loan.
Many farmers continue to be involved even after selling their farm business. Keeping a hand in the operation as a mentor or occasional worker without bearing all the responsibility allows retirees to gradually move on to other things when they want to.
Basically, selling the business doesn’t have to mean the end of your farming adventure, especially if you’re transferring it to your successors. If you’re the buyer, get ready to embark on a new adventure. Either way, it’s a process where you have to think about what you want and need for the future and plan the steps to get there. To make sure your business transfer goes smoothly, talk to an expert who can walk you through the process and give you some peace of mind.
Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank of Canada.
The articles and information on this website are protected by the copyright laws in effect in Canada or other countries, as applicable. The copyrights on the articles and information belong to the National Bank of Canada or other persons. Any reproduction, redistribution, electronic communication, including indirectly via a hyperlink, in whole or in part, of these articles and information and any other use thereof that is not explicitly authorized is prohibited without the prior written consent of the copyright owner.
The contents of this website must not be interpreted, considered or used as if it were financial, legal, fiscal, or other advice. National Bank and its partners in contents will not be liable for any damages that you may incur from such use.
This article is provided by National Bank, its subsidiaries and group entities for information purposes only, and creates no legal or contractual obligation for National Bank, its subsidiaries and group entities. The details of this service offering and the conditions herein are subject to change.
The hyperlinks in this article may redirect to external websites not administered by National Bank. The Bank cannot be held liable for the content of external websites or any damages caused by their use.
Views expressed in this article are those of the person being interviewed. They do not necessarily reflect the opinions of National Bank or its subsidiaries. For financial or business advice, please consult your National Bank advisor, financial planner or an industry professional (e.g., accountant, tax specialist or lawyer).