As a continuation of last week's 10 Steps to Family Farm Succession Planning - Part 1, here are the remaining 5 steps.

A vision statement is a future oriented and broad in scope.  It is the big “WHY” the business exists.  Without a common vision, conflict is common when there are differing ideas on how to use business resources (human, financial, land, equipment, etc.).  Mission statements on the other hand, are more focused and include how you are going to reach your vision.  This in turn develops into longer-term objectives which represent positive challenges and are easy to visualize.  Finally, short-term, well-defined, measurable and achievable goals are derived from these objectives.

7.  Strategic Planning (Long-Term Planning)
A clearly understood and agreed upon plan that incorporates the goals and strengths of individuals as well as the resources available to the business gets everyone, including off-farm extended family members, pointed in the same direction, walking down the same path, hand-in-hand – a force and energy that becomes unstoppable.  Once the vision is established, the mission understood, the objectives are defined and goals are articulated – they are all combined into a long-term strategic plan for the business.  It is a beautiful thing to watch a family come together as a business unit.  It is a healthy cycle when the business improves family relations and strong family relations improve business performance and so on.  This business plan is particularly important when communicating with lenders, vendors and business partners, and even more important when the business is growing and expanding which is often required to support additional families.

8.  Financial Feasibility
This is where the rubber meets the road and detailed financial projections are developed into a financial roadmap for the business.  This step involves using or developing farm records to better understand your financial position to make more informed decisions.  This long-range planning, cash-flow analysis and a more formal financial plan allow you to know whether you are on track or not.  As plans develop, sensitivity analysis will also be needed to anticipate the impacts of and reduce the risks from financial road bumps caused by death, divorce, disability, etc.

9.  Financial Security Planning & Business Structure Analysis
No succession plan for your business can be sustainable without addressing estate planning…and not just for the senior generation but for the successor generation as well.  There is a great deal of complexity and interdependence on how the business is structured (sole proprietorship, partnership, corporation, limited liability company, etc.), the decision-making structure of the business, the financial structure of the business (who owns and who owes what and how are profits calculated and shared) and the implication of income taxes, estate taxes and how assets can be passed between generations.  Indeed, it can be a complicated web of concepts and strategies.  Time spent in this area is the fine-tuning of intentions developed earlier specifically put in writing and made legal.  It helps avoid future conflict for successors and helps provide a clear understanding of the financial future for the senior generation.  While it’s not likely that you enjoy spending hours with professional advisors reviewing legal documents and tax strategies, taking the time to develop a clear plan and communicating that plan to everyone is truly a gift for you and your family.

Seems simple. Right?  It’s only 10 steps.  Easier said than done.  For sure.  This is a multi-year process.

One way or another, transition will happen for your family business.  It is literally unavoidable.  The business can be sold, go out of business, languish until your death or transition to the next generation during your lifetime.  

Effective communication and formal business planning can help increase the odds that your family farm can be properly positioned for a successful generational transfer.  It’s certainly a puzzle that can be put together. 

Is it worth the time and effort to follow a Do-It-Yourself approach and hope for the best, or invest a small, ridiculous fraction of your net worth to employ others to help your business through this process?  

1.  Determine Individual Goals, Objectives and Core Values
The need to identify and communicate everyone’s individual core values, goals, objectives, wants, needs, fears and hopes is the starting point.  There is no sense in moving forward with some grandiose plans for the next decade or so, when it is obvious that the senior generation wants to map out a plan heading “east” while the successor generation has dreams of taking the business “west”.  Without an understanding, appreciation and some shared concepts of the future, making a successful transition between generations become even more challenging than otherwise.  It takes some time and questioning to explore these areas of foundational importance to the succession planning of your family business. 

2.  Assessment of Current Financial Health
This important step answers the questions or how well the business is liquid, solvent, profitable and efficient and whether any changes might be needed if the family farm will be required to support additional families.  Without a detailed analysis, it makes it difficult to make such an assessment.  This may be one of the most important steps since it provides a basis for the feasibility of any transition plans and the financial requirements for success.  Additionally, full disclosure is important for the successor generation to understand the financial realities of the business.  

5.   SWOT Analysis – Internal Strengths & Weaknesses and External Opportunities & Threats
Understanding and assessing internal and external factors that impact every business differently, will allow you to develop strategies to maximize resources toward fulfillment of a deliberately stated vision for your business.  Understanding the current skill sets of your team members and the skills needed for the future shows you where gaps may exist.  In turn, this understanding helps everyone envision a roadmap for the future and becomes the basis for personal development plans, training and management transition.  Mitigating risks and taking advantage of opportunities by maximizing resources helps you maintain a sustainable competitive advantage, but without spending time exploring these areas, the future plans may become clouded and unclear for your team.

To be continued next week...

Who should be on Your Succession Planning Team? 
The exact composition of your farm business estate and transition planning team will vary by your unique circumstances and needs of the business and family members. Categories of likely professional advisors might include the following, each serving their role in a collaborative effort to best serve you and your family farm business: 

Family Business Advisors:
Often serves as the neutral third party or “quarterback” of the overall succession plan and provides the initial assessment of transition readiness and helps you develop the vision for the future and the overall “game plan”.  Each of the subsequent listed advisors provide specific technical expertise to execute the required action steps.

Attorney - Provides legal advice, prepares key legal documents such as power of attorney, wills, trusts, business organization documents and can provide insight into tax management strategies

Certified Public Accountant - Provides tax documentation for your business, advice for organizational changes in the business and for tax management strategies.

Certified Financial Planner - Provides advice and implements retirement investments and strategies for estate planning and tax management strategies.

Insurance Agent - Provides advice on insurance products and helps to implement life and business insurance and risk management strategies as well as financial security planning for the senior generation (i.e. retirement planning)

Lender - Provides input into the appropriate debt structure of the farm and opportunities for expansion or debt restructuring to help cash flows.  Also needs to be kept aware of plans for changes to the business relative to current farm debt.

Selecting Your Team Members
There should be a simple process for selecting the members of your succession planning advisory team.  If you or individual family members already have existing relationships with certain professionals, that is a logical place to start.  However, it may also be a good time to add one or two more advisors to your contact list that might be able to provide a fresh look or the needed expertise with this subject matter.  Of course we all do business with people we know, like and trust.  At least I do!  Here are just a few things we look for when forming a team of advisors for a typical succession planning project. 

1. Past experience with similar situations
   
2. References to past clients with similar situation    (Some advisors may raise the point that the identity of people they represent must remain confidential until the client agrees to share that information with someone else, which is perfectly acceptable)
3. Sample plans or examples of plans for review.  (However, sample documents may or may not be relevant to your specific needs)
4. A clear breakdown of their fee structure, including an estimated cost for various steps in the process. 

There may also be circumstances in some family situations when more than one professional advisor in a given field of expertise might be warranted.  For example, two different attorneys may be required; one to provide advice representing the business and another to provide advice representing individual family members.  What may be sound advice for the business may not necessarily be sound advice for a specific individual.  In many circumstances, concerns about conflict of interest can be overcome with waivers and disclosures, as long as everyone is made aware of and agrees to who is being represented (mom and dad, the business, majority owner, etc).  The same logic could easily be applicable to tax matters as well.  

NEXT ... one of my favorite areas, tools and management systems that can help transform you from a Farmer to a Farm Business Owner.  But before that, I will attempt to summarize the last several posts into next week's edition:  Succession Planning in 10 Easy Steps.    Sure.  That will be easy.  Indeed, big, broad comprehensive steps, but 10 steps nonetheless.  

So we’re close to coming full circle and now hopefully you can envision Eating that Succession Planning Elephant we talked about several weeks ago.

You and your family will often need the advice of qualified professionals with specialized training and experience in key legal, financial, tax and risk management areas of expertise. Using a team approach to coordinate the advice and discussions with professional advisors can save you significant time and financial resources in the long run.  The following is a simple overview of how a farm succession advisory team can be assembled. There are many variations.  

As a business owner, it is difficult and nearly impossible to successfully manage your business and keep abreast of the legal, financial and other issues necessary to plan and implement a successful succession plan.  After all, you cannot be expected to be an expert in everything.

More importantly however is the compounding impact of bring multiple professionals together at various points during the succession planning process to ensure that your team of advisors work together to address the interdependent parts of a succession plan.  These advisors should all act as a team, rather than a group of talented individuals in specific fields of expertise. 

Without a coordinated team effort, it can be quite frustrating and counter-productive for families planning their futures to receive conflicting suggestions from their advisors when these advisors have not taken the time to coordinate their advice with the family and their other advisors. 

Time and money is often wasted going back and forth between advisors. Sometimes, families just simply give up after being discouraged by the process and fail to fully develop their plans. 

Having a neutral third party working on behalf of the “family business” and not any one individual helps to ensure that all advisors work together using the team approach.  This can greatly reduce the chances of conflicting advice.  While it usually happens innocently, it is often a result of the various advisors not fully understanding the reasoning or trade-offs associated with another advisor’s recommendations.  

Collaboration amongst advisors usually results in advice that is much more relevant and effective than as if they had worked independently of one another. 

Prioritizing your goals can help ensure that the most important goals are focused on first.  Listed below are a set of questions that your planning team might consider for each goal to help identify those that should be the highest priority.

1. Which goals are most important for immediate family well-being, current business success, and/or retirement success in the future?
2. Which short-term goals, if attained, would help you achieve your long-term goals? 
3. Which short-term goals conflict with or impede your long-term goals? 
4. Which goals are sooooo important that they should be attained even if it prevents you from reaching other goals?  For example, if a goal is to provide a secure retirement, that might conflict with bringing in and having the business support three additional families

The process of sitting together and discussing everyone’s goals almost has as much value as achieving the goals themselves.  It’s the process that often helps families best.

BEWARE!   It is common to have some disagreements  (Well…duh Jim!).  As the business leader, your role is to help lead the team toward gaining mutual agreement and commitment on something as simple as the top five priorities for your business.  If that cannot be accomplished, you and your business will likely face serious challenges in meeting ANY of its goals.

When all team members of your business know and understand the top goals for your business, and everyone is working in unison towards those goals – Oh baby.  Look out and have fun!