During a recent conversation, a farmer client business owner expressed these exact same words.  These are probably the most ironic statements a business owner could ever make.

When you or someone in your business begins the process of planning for the future of their family business, it is important to thoughtfully consider the goals for the plan and the business as a whole.  

Far too often, families enter into the succession planning process from a single issue frame of mind, such as estate tax avoidance or what documents to we need to execute. 

Well hold on cowboy!  This approach usually leads to an incomplete plan, or a plan that fails to recognize the needs and desires of ALL key members of the business. A more formalized process of setting and prioritizing goals for the farm succession plan can help ensure that the resulting plan best fits the unique needs of the business-owning family. 

 For detailed way of thinking about goals and helping you prioritize, send me an email requesting the Goals Worksheet.  I promise:  

• It’s hard work,
• Requires you to dedicate a solid 2-3 hours to the process,
• Is possibly something you may have never done before and,
• Is usually worth the effort.
  

The consequences of not planning are often quite predictable.  If your farm is simply “willed” to the succeeding generation, inheritance taxes could cripple your farm.  Additionally, as you and owners like you wrestle with the question of giving all heirs an equal share in the estate, one of the most important considerations is the fact that all of a sudden, all the heirs are suddenly “business partners” with each other.  Uh-oh.  Think about that for a few minutes. 

Sure some families are perfect and could handle an unexpected or even an expected, generational transfer of the family business…but c’mon, really?  It is the rare bird indeed that could make this migration without losing any feathers.

Quite the opposite can come into play also.  Just because Johnny or Susie worked on the farm for years, doesn’t mean they are truly capable or ready to handle the full responsibility of owning the farm and keeping it viable.  Inadequate farm succession planning can result in leaders that are simply not capable of running the farm…profitably…over the long term.  

Poor planning can also create undue conflict, prolonged legal battles and division of business assets to satisfy those that simply want to “cash in” ….or for the tax man.  There is a lot to think about.  Succession planning is not a one-time transaction, but rather a process that can take years to develop successfully.

I am sure some of this stuff keeps you awake at night.  These situations happen all the time and have happened for centuries.  Although farmers never plan on fully retiring, let alone passing away, odds are good that someday you may not be around.

A consideration with farm transition planning is for current and succeeding owners to specifically identify what their own family’s personal financial requirements will be in the farm succession plan.  For example, if the current owners need a reliable source of retirement income, what will be the source of that income? Will it come from equity in the business, income generated by ongoing operation of the business or will it come from private financing that the succeeding owner is expected to obtain to purchase a share of the business?

Another essential element in your farm succession plan is a clear plan for the timing of turning over management and ownership control of the business.  It may be a certain date, or contingent upon specific conditions that must be met.  This certainly need not be done at one specific point in time, but can be done gradually over time.  This will assist the current owner in meeting needs for reliable retirement income and the succeeding owner in using current profits to finance the transition, rather than rely solely on commercial financing of a pre-determined purchase price or the gifting of assets from a generous senior generation owner. 

Succession planning can loosely be defined as the process of transferring ownership and control of a family business from one generation to the next.  

It goes well beyond the simple transfer of assets – it also includes bringing the entire family together in the decision making process, improving communication between family members and creating a decision making process and system that brings people into the process and allows them to contribute on key decisions.  

Overall, family farm succession planning involves the successful transfer of the financial, managerial and operational control of the family business.   Areas that are reviewed include the following:

The successor may be one person or may be several people who operate under a business structure that allows all owners to participate and share in the rewards.  You may have identified the successor from working relationships established over time or from conversations with family members or others. You could assume that certain family members should be in line to succeed without confirming that the expected successors are indeed interested in taking on the business.  Open communication between family members and a decision making process that seeks input from everyone should assist in determining who has legitimate interest in being part of your business in the future and who does not. 

Required Skills/Experience
Identifying the successor will also include establishing the personal, technical and managerial requirements a successor must have to be qualified to operate the business. The process of identifying these requirements is similar to writing a job description for the tasks that a manager performs in the daily routine. These requirements will vary from one business to another.

Where is the successor currently working?  Some people may be working toward succession alongside the current owner or they may be working in some unrelated field that can prepare them to take on management of their own business in the future.  If management experience is needed it can be gained in several ways:

• Working in a business side by side with the current owner is the traditional way to gain the operational knowledge and experience to run that business. 
• Working in a separate segment of the current business making decisions and dealing with the consequences of them is another means. 
• A third approach is to gain experience in a field or business that is completely unrelated to the family business. 

Opportunities for education or training in today’s economy may give a person the chance to do something they always dreamed of doing. Once in that field, the person’s interest may change or the situation changes which makes career change a necessary consideration. Taking inventory of the skills and experiences gained in this unrelated activity often can be applied to a variety of other activities within your family business.  Maturity, judgment, responsibility and integrity can be universally applied to any activity.

Adequate time must be allowed to find qualified candidates, to give candidates an opportunity to consider the proposal, and to allow for qualified candidates who may choose to turn down the opportunity for their own reasons.

Why do some farm families take on the task of succession planning?

Does it depend on having knowledge about the process?

Does it depend on understanding the consequences associated with taking…or not taking…action? 

Considering the importance of family communication and the complexities of family relationship “issues”, it is sometimes quite obvious that the succession planning process has many layers and is chock full of potential hazards….and might very well be the reason for its delay in many family businesses.  Can you really blame someone for NOT wanting to get involved in what could be an uncomfortable situation?  Of course not.

• A third party advisor is more able to fully dedicate their time to your business plan
• Family members and/or management are busy running the “the business” and are often distracted from the succession planning process
• A neutral third party advisor does not advocate for one any person or groups of people, but rather for the succession of the “family business unit” itself.
  

You and your family make the decisions while the advisor has the skills and experience to guide you toward agreement on complex issues.  Someone that is familiar with your business, your type of business or who has served in this role for other family business are key in helping you choose the right facilitator.

The next newsletter will look at decision making processes, business assessment, identifying future leader(s)/management, required skills, working arrangements, entering and exiting family members’ financial needs, a workable time table, implementation, review/feedback, adjustments.

Yup, there’s a lot to it.  It takes time.  Small bites will enable you to consume, overcome and reach something that could not be done in one herculean effort.

There is an often quoted joke or saying; “How do you eat an elephant?   Of course...."One bite at a time!"  While that appears obvious and it may not be new to you, a slight addition could bring it a whole new meaning to you…

How do you eat an elephant?  By taking small bites out of your elephant and taking the right bite at the right time.

To determine what bite you need to take first, you need a strategy.  With a defined strategy, you can choose where to start.  Finally and most importantly, a strategy will help determine what you want your elephant to look like and how and who you want to share in the feast.  A planned strategy will help keep you focused on the objectives and final results…not the work at hand.