How to Know When It's Time

July 1, 2010 07:01 AM

Q: Our family operation is in the heart of Iowa corn country. My brother and I are third-generation farmers, and our kids represent the fourth. As partners, we’ve been talking about how to keep the farm in the family, and we read your column regularly for ideas.

Our oldest sons are 11 months apart. Both of them have been dedicated to growing the operation since college, five and six years ago. My daughter is interested in joining the operation when she graduates in June.

Though succession planning sounds like the right thing to do, we’re not ready to quit. We don’t think the boys are ready for the management responsibility; we farm 7,200 acres and have four employees. How do we know when it’s time to seriously consider succession planning?

A: Many people wrestle with the when and how of succession planning. Starting the process does not mean you’re giving up, rather it’s the next step in growing a business. Succession planning provides the current generation the opportunity to prepare the next generation for leadership. It encourages pride in a family legacy, and it forces structure.

Most people farm with hardly a thought beyond current obligations and projected income. As the operation grows, they may see a need for a detailed plan. Yet a succession plan doesn’t usually become an urgent concern until they witness a neighbor struggle with the uncertainty.

A comprehensive succession plan minimizes the risks and uncertainties of passing on the farm. Review the following questions with your brother to help determine if it’s time to start the process.

1. Can the current operation support additional families?

The current operation will support a finite number of families. Work with a team of advisers to make plans for growth—and put a business plan in writing. Encourage the next generation to participate in a leadership development program.

2. Is the farm run like a business with operating procedures and a management structure?

To grow beyond lifestyle farming, you must run your farm operation within a formal business structure. Employ standard operating procedures and use tools, such as an employee handbook with hiring guidelines, for all new hires, including family members.

3. Does the family share common succession intentions?

When you and your brother talk about succession planning, include your spouses and the three active and soon-to-be-active children in the discussion. Everyone should have the opportunity to ask questions and make suggestions.

4. Can the owner retire without converting equity to cash?

Financial security is critical for you and your brother. As the succession discussion unfolds, explore ongoing obligations and retirement income and expenses. Explore what can you do now to prepare financially for the future.

5. Do active family members share a common goal for growth?

Complementary differences in execution, management and personality create a strong management team. But the active owners, present and future, must see the same scene as they look to grow the operation for the future.

6. Does the next generation have a strong work ethic?

Don’t ask: Does the next generation work as hard as you? Instead: Do they work hard enough to overcome the sluggishness of a down economy? Can they work through the trials of a challenging industry, including managing a hefty debt load, and will they be able to supervise employees?

7. Can the senior generation allow the next generation to make mistakes and learn from experience?

Compromise in this area and you undermine the developmental integrity, decision-making ability and resolve of the next generation. Making mistakes and recovering from disaster are critical to growing competent managers.

8. Does the family recognize the opposing objectives between active and inactive owners?

Active owners and inactive heirs have opposing objectives. Active owners want to grow an operation; inactive heirs want the value of the operation exchanged for dollars.




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