One Chance to Do It Right - The First Time

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:

Financial Assessment:
Creating a succession plan begins with a financial assessment of your business.  If your business is not on stable financial ground now, what is the likelihood that it can continue in the future when control is transferred to the succeeding owner(s)?  

If the succeeding owner is to come into the business to gain any needed experience, is your business able to support the succeeding owner’s immediate income needs?  This should be a critical assessment that addresses the current and projected financial performance of your business.

"Do not wait until the conditions are perfect to begin.  Beginning makes the conditions perfect."

Identify Next Generation
After determining that there is indeed a future to your business, the next step is to identify the successor(s) or manager(s) or to establish a process that will result in identifying the best potential successor(s).  

• Who should pick the successor or have input into that decision?  
• How should the final decision of naming the successor be made?  
• Maybe the successors have already been identified, no?

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.

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The next newsletter will review some thoughts on the way personal finances impact family farm succession planning as well as time-frames and the need for flexibility in developing a business transition plan.