Q: What is succession and what will it accomplish?
A: Succession is the process of transitioning the family operation to the next generation. The measure of success, in the discussion stage, is a clear vision of what you want to accomplish. It may include naming a management successor, specifying the years until retirement, and identifying a method (including funding options) for transitioning ownership.
Q: What’s involved in a succession plan?
A: A good succession plan is far more than a financial or business arrangement. It’s a roadmap for ensuring the continued support, security and growth for you, your family and your operation.
Whether you are going to seek professional assistance in creating your plan or build it on your own, a comprehensive succession plan should address the following issues:
Financial Security – A well-crafted succession plan provides financial security. Current and projected cash flow is a key to planning success. Each affected family must measure the proposed succession plan and determine the ramifications on their financial security. Off-farm investment may help the family manage the economic cycles of ownership. Good financial management is imperative for lasting security.
Management Continuity/Ownership Transition – The plan should detail the process for transferring ownership. It may be as simple as identifying tomorrow’s leaders, establishing a time frame for transition and defining the method of transfer. In most cases, creating the transition plan requires measuring distributions, defining timelines and establishing the optimal ownership transition. In evaluating alternatives for ownership transition, maintaining a continuity of management strength should be a primary goal.
Leadership Development – Most next generation leaders have a solid education and good experience. They know the fundamentals and perform the requisite chores. A plan for Leadership Development, including people management, team development, project coordination, business design and professional growth, is critical to continuing growth and lasting success.
Estate Planning – Common estate planning techniques can compromise the integrity of an operation by granting ownership to inactive family members. An estate plan should reflect farming’s unique financial conditions and be designed to maintain the family’s financial security, plan for equitable distributions and mitigate the estate tax liability.
Q: What are the benefits of a succession plan?
A: A comprehensive succession plan builds families and futures. It should provide you, your family and your operation with benefits that include:
Security: The primary goal of any plan should be financial security for you and your spouse throughout life, and for your spouse long after you’re gone. Neither of you should ever have to be dependent on anyone, including your children, for a comfortable life.
Opportunity: The next generation almost always wants to place its own stamp on the direction, focus and growth of the family operation; a good succession plan will determine ways in which they can do so immediately, and it serves as a guide for long-term opportunities.
Clarity: Building a succession plan means having the family conversations you’ve long meant to have, but never quite got around to. By the end of the process, family members will be clear on each person’s hopes, dreams, commitments and expectations. The families we work with believe these guided conversations provide some of the richest rewards of the entire process; they bring issues to the table in a structured way and give everyone a clear picture of where things stand.
Vision: In dealing with the day-to-day demands of farming, it’s often hard to step back and consider the larger picture. In creating a succession plan, however, each generation has a chance to talk about their dreams for the future, and a number of actionable ideas that emerge during the process.
Focus: A good succession plan is a good business plan; by the time it’s complete, you and your leadership team will have a specific road map for where you want to take your operation and what level of risk you can tolerate in the process. The result is faster, more effective decision making.
Leadership Development: Knowing where you want to go also means determining what it will take to get there. True succession planning includes identifying the training and skill development needs of the next generation and creating the necessary development plan for each person. The result is a stronger leadership team and a stronger business.
Q: How do we get started?
A: A family meeting is the perfect starting point for the succession planning process. A simple explanation to family members can get the ball rolling: “We’ll be scheduling a family meeting soon to talk about how each of us would like to be involved in the future of our operation.” Then set a date, select a location, and establish an agenda. Keep in mind that you and the other participants must have realistic expectations for the outcome of the meeting. Set specific goals to help maintain focus as the conversations unfold.
It also helps to establish ground rules, such as: 1) Involve all active family members. 2) Don’t personalize issues. (No ‘us versus them’). 3) Stick to the agenda. Don’t re-hash old grievances. 4) Listen without judging. Hear each other out. 5) Seek common ground and mutual benefits.
Conclude the initial meeting with an action plan detailing next steps, who’s responsible, and time frames. This will ensure participation, accountability, and commitment.
You’ll also want to take advantage of the valuable guidance, tools, and resources offered through the Farm Journal Legacy Project.
Q: What’s the difference between a succession plan and an estate plan?
A: Estate planning and succession planning are not the same. Many people use the terms interchangeably, but as Mark Twain wrote, “The difference between the almost right word & the right word is really a large matter--it's the difference between the lightning bug and the lightning.”
Common, off-the-shelf, estate planning techniques are designed to mitigate the estate tax. That’s what estate planning is all about.
The goal for succession planning is much more comprehensive – it is to pass a going-concern to the next generation as a viable business opportunity while providing financial security and lasting value for the current generation.
Q: How often should a succession plan be updated?
A: Succession and estate plans are not once-and-done affairs. Maintaining the validity of your plan calls for annual reviews and updates. Everything changes, from the composition of the family and the design of the operation to tax laws. To maximize efficiencies, your plans should be fluid. Among other concerns, inactive family members always have different objectives from inactive children – who do not want an interest in the operation.
Q: How do we know when it’s time to seriously consider succession planning?
A: 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. To ensure that your family achieves that picture that you each have in mind, you may resolve that it’s best to start right not.
Q: When is the right time to start succession planning?
A: Right now.
It’s never too early to start. It is also never too hard, too easy, too complicated, too confusing, too boring, too tricky or too distracting to start.
It can be too late to start. We’ve all seen it happen -- the family torn apart by disagreements and grief because there was always something more urgent or more pressing to do than putting a plan on paper. The tragedy is only compounded by the fact that the right plan, in addition to sparing a family grief, also would have built a stronger, better business.
The right time to talk about what you, your family and your operation want, need and hope to achieve is now.
Sit down and talk with your family. Get professional assistance. Make a plan. If it’s not perfect, you can fix it; if conditions change, you can update it. The single most important part of a succession plan is having one and the most important step is getting started.
Q: What if my family can’t see eye-to-eye about our goals?
A: The success of a plan is always determined by the quality and quantity of two-way communication within the family. A good planning environment is based on mutual trust and respect. If your family faces communication challenges, here are five key points to consider:
1) Clearly define your objectives of the intent of each interaction.
2) Try to understand the other person’s point of view.
3) There are numerous options; be open to alternatives.
4) Acknowledge that it takes complementary qualities to build an operation.
5) Know that it is okay to disagree.
Q: How do I make the best decisions for active and inactive children?
A: In the succession planning process, the equal versus fair discussion paralyzes most parents. They often find it easier, though not necessarily comforting, to leave the farming operation equally divided among all of their children regardless of their involvement in the operation.
The result of parental paralysis is a tug-of-war between active and inactive owners, and dissension in an otherwise happy family. At risk is the life-long career of active family members and the result is often a failed business enterprise.
When some of the children have been active, and others not, equal isn’t fair. It also isn’t good business.
It is possible to find a more equitable solution. In doing so, some specific factors should be taken into consideration when reviewing the involvement of each child in the operation. Those factors are:
Tenure – While length of service does not indicate success, it does demonstrate dedication and loyalty to the operation.
Performance – Measuring the performance of every employee, including family members, is a key to lasting success, continuing motivation, growing capability and open communication.
Professional development – All employees, including family members, should be recognized and rewarded for increasing capabilities and growing professional competence.
Skills and abilities – A capable person who has demonstrated their abilities should be rewarded for their inherent value to the operation.
Q: How long does it take to establish an initial plan?
A: The succession planning process can take months and sometimes years. It may entail changing roles, behavior modification, legal work, and sophisticated funding strategies. The planning process follows a defined set of guidelines, yet the solutions vary since each family is unique.
As you begin the journey of succession planning, a multi-step process can help you establish a comprehensive plan – to develop something bigger than self, an operation that will grow for generations to come. How long the process takes will depend upon the complexity of the operation(s), how many generations and family members are involved, how similar the objectives, and – in many cases – to what extent the active family members prioritize the process. Procrastination is the enemy of good planning. Once the succession planning process is underway, be diligent to keep the momentum going; hesitation is a threat to your succession aspirations.
Q: Who will be involved in the succession planning process, and why?
A: Only active family members should be included in discussions regarding ownership, transition plans, financial arrangements, etc. The concerns of inactive family members often cloud the issues and distract attention.
Getting a plan put together also requires some outside help. Whether it’s lawyers, financial planners, family advisors or a project manager, you’ll need some advice. And attempting to go it alone almost always leads to planning being put on the back burner – it’s just too big a task for folks to tackle. So think about what help you need; getting the right team together will make planning a whole lot easier and much more enjoyable.
Q: Why is continuation of the family operation important?
A: The preservation of the family operation is the foundation on which succession planning is built. If maintaining the future integrity of the operation is not important, an owner can suffice with a retirement plan and a simple estate design.
Q: How do we select an advisor to guide our planning?
A. A key decision you make following the commitment to engage in the planning process, is who should act as your succession planning facilitator. The person or firm you select should have the right credentials, experience and education to support your objectives and the duties of the role. Make sure you have the right team in place.
Putting a succession plan together will require professional assistance. If nothing else, you will need a lawyer to prepare the documents, an accountant to crunch the numbers, a financial planner to implement and others along the way.
Your first decision is whether to try to manage the succession planning project, and the professional help it requires, by yourself or hire a Project Manager to facilitate it for you. (The Project Manager is usually one of the professionals –financial planner, attorney, accountant, etc. – who will be involved in the project.)
You can manage the project yourself, but, not surprisingly, we strongly recommend hiring a Project Manager. Creating a succession plan involves a great deal of research. Trying to manage the process can quickly become overwhelming, which may lead to failure. A Project Manager familiar with the succession planning process will be able to handle the details more efficiently and effectively, improving your results while saving you time, effort and aggravation.
When hiring a Project Manager, remember that they will be serving as coach, confidant, and expert to multiple generations of your family.
A Project Manager should:
Assemble a multidisciplinary team of professionals to include, but not limited to, financial planner, accountant, attorney, and others as the situation demands to ensure an efficient and effective succession planning result.
Lead discussions, interviews and meetings with owners, management, other professionals, and the family.
Delegate responsibilities to others and assure that planning is completed in a timely manner.
Coordinate the succession planning process, including all communication, from initial consultation through implementation.
Stay abreast of relevant financial and legal developments and facilitate regular follow-up. Review and, if necessary, revise the plan in accordance with current tax law, business environment, and family dynamics.
Q: Who can I contact for more information?
A: The succession planning alliance for the Farm Journal Legacy Project is Legacy by Design, LLC, founded by ‘Leave a Legacy’ columnist Kevin Spafford in 2005. Legacy by Design is singularly dedicated to succession planning in the agricultural community. Established in rural Northern California, they have client families from coast to coast.
For more information, or to schedule a consultation:
Mail: Legacy by Design, LLC
2550 Lakewest Drive, Suite 10
Chico, CA 95928
Fax: (530) 345-7474