The possibility of the next generation joining the farm can be an exciting time; yet change, even positive change, can be stressful. Farm succession and its many components can be overwhelming for farm families.
If a farm owner is lucky, succession may be something he or she does twice in a lifetime, once when taking over the business and again when passing it down to the succeeding generation. Early planning provides time for the younger generation to build management skills and equity and for the older generation to service debt and plan for retirement.
A family farm inherently mixes family and business issues. Family and business systems focus on different goals. Families are concerned with emotions and focus inwardly on people’s needs, emphasizing stability and limiting change. Successful businesses focus on performance and external influences and take every opportunity to use change to their advantage.
In a family business, overemphasizing one system over the other breeds conflict. Family farms can acknowledge the differing goals of family versus business while also finding some common values.
One way for a family farm to begin separating family and business and improve communication is to focus on a three-step process of evaluation and planning. If farm members are having trouble communicating about farm succession, focusing on more tangible aspects of the business can bring the farm members together to address operational issues and improve the business. Building trust through this process can provide the bridge to planning for long-term decisions and succession.
Where is the farm now?
Taking stock in the business as it stands now can help put all members of the farm on the same page. Farm members should:
1. Determine the readiness of farm members to plan for the future. Is everyone committed to discussing the farm business, devoting the time, and implementing the decisions made?
2. Review the financial statements for three to five years to determine profitability, cash flow, financial position, solvency, and liquidity of the business. This may also include reviewing each enterprise to ascertain which is most profitable.
3. Evaluate the working infrastructure (age, condition, and adequacy of the machinery and buildings).
4. Review production data, identifying both positive and negative trends.
5. Discuss management capacity of the business members and labor needs.
6. Discuss how decisions are made — both operational and strategic decisions.
7. Develop current job descriptions for each farm member, including owners/managers. These descriptions should include areas of authority to make decisions.
8. The quality and quantity of land available to the business.
9. Local infrastructure (availability of supplies and services, markets and labor, community support of agriculture).
Another component of this step is identifying individual and family values. These, in turn, shape the business’ values. Family culture, education, personal experiences, and world events shape a person’s values. While family members can share similar values, their definitions of honoring those values may be different.
For example, a common value for those in a family business is family. However, defining how to honor that value can be different between individuals or generations. The older or owner generation may feel that contributing long days to the family farm is a way to honor the value of family. The younger or succeeding generation may feel spending time with their spouse and children away from the farm is the best way to honor their family value. With these differences in mind, value exercises should go further than identifying words and encourage people to identify outcomes and behaviors that indicate if they are living their values.
By fully analyzing the current farm business performance and structure, the farm members can pinpoint areas of strength to build upon and areas of weakness to address. Including the next generation in the analysis and evaluation of the farm business allows them to provide input and ideas.
It also sets the tone for communicating as farm partners. While this may not immediately change communication patterns established in the family, it can help members focus on common goals to improve the business. A farm family communications consultant or mediator can be helpful if farm members cannot communicate at a level needed to complete an analysis and address management issues.
Where do we want to be?
The next step is to answer, “Where do we want to be?” This is when farm members envision what they want for their personal lives and for the farm business. Using the time frame of three and five years, each member should answer the following questions:
What will you do?
Where will you live?
What will be your daily responsibilities?
Where will you get your income to pay your living expenses?
What will your farm business look like (size, managers, enterprises)?
How involved will you be in the daily management decisions of the farm?
How involved will you be in the long-term decisions for the farm business?
How much ownership (percent) in the farm will you have?
If goals, visions, and timelines don’t match, much more discussion is required to determine if a succession plan is possible at this time.
How do we get there?
Information and answers from the first two steps provide farm members the foundation to finally work on the question, “How do we get there?” The two generations can work on solutions together because they’ve identified and agreed on where they want the farm to be. At this time, additional team members can be included, such as the farm’s tax specialist, attorney, various production and/or business management consultants, lender, extension educator, and possibly a family communications consultant.
Agricultural service professionals provide the expertise necessary to uncover and evaluate options for the business. To do this effectively, everyone must be able to clearly express their intentions and goals for the business to their service professionals to get the best advice and options for their situation.
Families may find the use of a facilitator helpful. One of the agricultural service providers may be able to serve in this role. The facilitator provides structure to the discussions and can objectively ask important questions that family members may find difficult to ask themselves.
Family businesses that can base their decisions on clear values and a common vision have a strong foundation to weather the inevitable changes that multi-generational or multi-family farms face.