Generation Next

June 2, 2013 09:25 PM

Fill in the knowledge gaps

Bringing the next generation of young dairy farmer partners—be they sons, daughters, nephews, nieces, in-laws or even unrelated but high-potential employees—into management positions is rarely easy.

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But it must be done if the business is to prosper and be transferable to the next generation, says Kevin Spafford, Farm Journal’s succession planning expert.

That doesn’t mean the older generation must turn over all decision-making authority. "But the older generation shouldn’t short-change the younger generation on responsibility," Spafford says.

At some point, the younger generation must be given some real-life decision making power, and the older generation must allow them to live with the consequences of those decisions. They should share in the rewards if things go well and in the fallout if decisions turn out badly, he says.

The upcoming generation, particularly if they are college educated, likely has more business training than any previous generation of farmers. "Real life experience is what they lack," Spafford says.

His firm has worked with more than 200 farm families during the past 7½ years in farm transition planning. "In general, the more successful the operation, the more rigid the younger generation is in maintaining the status quo," he says. "Those farms that have struggled are more willing to try things."

In today’s volatile, uncertain business environment, those willing to try new approaches have a better chance of success.

One role a member of the upcoming generation can play is that of chief financial officer (CFO). Most farms think they have a CFO if they hire an accountant to give them annual or quarterly financial reports.

But the CFO role is much broader than that. He or she takes that financial information and then analyzes it in terms of business health and direction.

"A chief executive officer (CEO) by nature needs someone to put the brakes on," says Bob Milligan, a senior business consultant with Dairy Strategies LLC.

The CEO has the vision and the drive to move the business forward. The CFO needs to put reality into the decision-making process. The CFO does the scenario and sensiti­vity analysis—asking what will happen if an expansion doesn’t go according to plan, if milk prices plummet (2009) or feed prices sky-rocket (2012).

A lot of dairies have daily, weekly or monthly key performance indicators (KPIs) for production, such as milk weights, dry matter intake or number of cows bred. But then they rely on their accountant for annual (or at best, quarterly) financial reports. The CFO brings that same kind of production discipline to the business side of the operation to ensure it is performing, and when it isn’t, to figure out why.

This might be a role a member of the upcoming generation can fill. And once he or she understands the inner workings of the dairy operation’s finances, he/she will be much better equipped to take on decision-making authority.



Business Training

If the upcoming partner does not have formal business training, there’s a wealth of training available. And even those who do have some business expertise may have gaps to be filled.

"Sometimes, they don’t know what they don’t know," says Kevin Spafford, Farm Journal’s succession planning expert. And sorting it out isn’t easy.
That’s why you need a trusted mentor—a respected business person in your community, a consultant, accountant, lending offi­cer—to guide you.
Sometimes, simply being exposed to other top business people in your community can pay big benefits. "Agriculture is unique, but it’s not uniquely unique," says Bob Milligan, a senior business consultant with Dairy Strategies LLC. "The same business principles that apply to Main Street businesses also apply to us.
"For example, my brother who farms in Michigan has bene­fited tremendously being a member of his local Rotary Club for 40 years. Those local service clubs—Rotary, Chamber of Commerce, Lions—teach leadership skills while rubbing shoulders with the largest businesses in your area," he says.
Quite a number of agricultural companies offer "free" business training seminars, as well. While the companies will likely promote their products and try to build brand loyalty, the business management information offered is often top notch, Milligan says.
There are also more formalized programs such as the Cornell Dairy Executive
Program or the The Executive Program for Agricultural Producers offered by Texas A&M. While these program can cost $5,000 to $7,000 or more, they are intense management courses that
are designed to shore up gaps in farm business knowledge.
Young producers can also get involved in peer groups, such as the Top Producer Executive Network. Here, farms of similar size share financial statements and business plans, learning from each other. These peer groups are best when they have an outside facilitator who can provide or find needed business training.
In any of these approaches, first and foremost, you need a plan. "It can’t be passive," Spafford says. "You have to be an active learner and a willing participant. You should have well-defined goals and specific learning objectives."

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