of the family operation
December 30, 2013
ith the USDA (United States Department of Agriculture) predicting that 70 percent of farmland will change hands in the next 20 years, planning for a smooth ownership transition and preparing the next generation to take the reins is paramount for the continued survivability of the family farm and ranch.
Founder of Legacy by Design Kevin Spafford spoke to Wyoming Farm Bureau members about five keys to effective succession planning during the Wyoming Farm Bureau Foundations "Plan Success" workshop Nov. 14 in Laramie, Wyo.
"Seventy percent of farms and ranches do not survive going from the first to the second generation. Of those remaining, 90 percent will not go to a third, and of those remaining 96 percent will not go to a fourth," began Spafford of the fact that for the vast majority, implementing a successful and effective transition plan is needed.
When over 50 percent of the audience responded that they were generation five or more on their operations, Spafford asked where they expanded.
“You can manage those steps and make sure the family goes through them as they should,”
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"Think about those folks whose property you're farming because they didn't make the grade. Whatever the story is, the fact is those folks didn't make it, and we are here to talk about what got in their way, and what stops us from transitioning a higher percentage of operations to the next generation," he explained.
Follow a defined planning process
Spafford suggested started with family meetings, and noted that in many cases having someone facilitate the first few could help all family members become good meeting participants.
"These meetings should be held at a neutral location in a safe environment. There should be an agenda of business items that are followed and a decision making process," stated Spafford.
Additional questions to consider prior to and during the first meetings include where to start, is a plan necessary, how will the equal vs. fair issue be handled, and who is needed to help with the process?
"I've learned over the years that many farmers have a plan in place, but nothing in writing. They might have intentions, but no actual plan. If they do have a plan, it is often an estate plan, which is designed to transfer property with minimized taxes, and to transfer the property after death. It typically puts everything in one bucket that is divided equally among the heirs, and when that happens you have just destroyed the operation. If you sell the golden goose there are no more golden eggs," explained Spafford of why a good intention and estate plan are rarely enough to ensure the operation will continue upon the senior generation's death.
He further noted that many of the senior generation like the idea of maintaining control once they finally have it, and consequently see transition planning as a loss of that control. Spafford suggested that rather than take such a mindset, operation heads should work the control issue into a plan, and make sure there is a contingency in case something happens to them unexpectedly, thus ensuring they aren't the last person to ever have control of the operation.
Dealing with obstacles
Leases, in-laws, solvency, commitment and maintaining the Norman Rockwell image of the perfect family are all obstacles families enter transition planning concerned about.
"Equal versus fair is an obstacle we all face unless there is an only child who wants to return. For most of us there are multiple heirs, and we have to open the conversation on the subject if we ever hope to reach an implementable conclusion, which there is for every family," stated Spafford.
In-laws are another issue often brought up to Spafford during the planning process.
"How many of you picked your kids? They don't always behave correctly or make the right decisions, but they're still your kids and you go along with them because you know that's just how they are. To me, in-laws are not an issue, plus they're actually a good thing because that's where the next generation comes from. They're part of the family – a part we didn't choose, but again we didn't choose our own kids either," he noted of the common statement that in-laws are considered an obstacle when considering transition.
Spafford further suggested including in-laws in the decision making process, noting that personal bank statements and other highly personal information doesn't necessarily have to be laid on the table, but that including them will provide additional perspective, reduced bad feelings and will keep everyone involved on the same page.
"Any of these issues become much easier to deal with if we open up and have the conversation," stated Spafford.
Settle on common goals
"If you think about it, there is no such thing as a real "win, win." You cannot ever appease everyone. But, if everyone feels they compromised a bit, met in the middle, and that the focus remained clearly defined as far as what everyone wants to accomplish, and if when finished a family can look at the plan and see what was deemed important within it, then they have reached success," explained Spafford.
It is common for each person to have different objectives for what success within the operation might mean to them. Including everyone in the discussion of goals, and ultimately deciding as a family what the top priorities are will make the planning process a lot easier for everyone.
However, Spafford noted that in some cases a family member may refuse to attend meetings to work on goals and succession, and consequently limit and/or dictate the decision making process.
"Have the meeting anyway. They will only miss one – after that they'll be at every other meeting because they will realize life goes on without them if they choose not to participate," stated Spafford of how to get an unwilling participant to become an active part of the process.
Utilize good communication skills
"When communicating, pick the scab. Talk about money, responsibility, willingness and passion and trust. Talk about how we demonstrate and achieve trust, and how we sell our ideas," began Spafford.
He also suggested discussing what each generation's strengths are that they can contribute, and what each generation needs from the other generations involved.
"That single exercise makes a huge difference in talking about what each person provides, and what they need from the others in the room. It sets the stage for good communication and transparency.
"As Ron McMillan said, our motives should not be to control or force, but rather to explain and understand, to help not hurt, and to create a good working relationship rather than just an outcome everyone feels back about," noted Spafford.
He also suggested that older generations get their heads right in that the person wanting to take over the reins someday is no longer the 16-year-old that stole their truck keys, but rather a potential partner and adult who wants to be treated as such. The younger generation should in turn show a desire and willingness to become involved further in the operation.
"The final step is commitment. This is where we start to actually put pen to paper, and say that when we leave here, can each person commit to doing what was decided within the meeting?" said Spafford.
Commitment must be demonstrated from all involved members, both in and outside of the meeting. Real respect and accountability needs to be placed on the younger generation to ensure they are incrementally taking on more of what they will one day be in control of.
Conversely, the younger generation needs to work on making good decisions and respectfully building the level of trust and knowledge within the operation and its shareholders.
"Nobody likes to sit in meetings and be the facilitator, but after you have the first one and the one after hat and the next, you get better at it. You don't realize until you make that commitment and have those meetings the transparency and improvement they bring," noted Spafford.
For families interested in started the process, there are a number of online and in-person resources available today. For anyone interested in getting the ball rolling, Spafford suggested they make sure their head and heart are in the right place, and that they work through the process being mindful of goals, potential outcomes and relationships, realizing that all can be vastly improved upon through implementing a successful transition plan.
"You cannot simply self-medicate for this process. But, you can be very informed as you take each step and you can manage those steps and make sure the family goes through them as they should," concluded Spafford.
For more information on Spafford's "Five Keys to Effective Succession Planning," please visit legacy-by-design.com.