How to Make a Successful Transition to the Next Generation
September marks my 25th year working for Compeer Financial and its predecessors. One constant over that time has been the continuous change. We have new and better technology in all aspects of our life. The people we work with change, as individuals find new jobs or retire along the way. But the most important change I have witnessed is the next generation of producers making their mark. The generational transfer of any business is challenging, but we are seeing it in industry, technology, banking and agriculture, especially the swine industry.
New Factors to Consider
It's every parent’s dream to build a lasting legacy for their children and provide them the opportunity to step in and grow the family farm. I believe that transition was much easier a generation or more ago, as families handed down the farm and a new generation took over. Today, we have seen the success of those farmers that made it through the ‘80s and aggressively grew their farms into thriving businesses.
Most farming operations today have new factors to consider that they didn’t have to address when they started. Most hog farms have from several to hundreds of employees who could be impacted by generational transfer of the business. When the previous generation started, they could take risks and if they made a mistake, they only had to look in the mirror to find the culprit. Imagine putting yourself into the next generation’s shoes now. One mistake could severely impact the financial performance of the business, which could have a lasting impact on your employees and your retirement.
Is the Next Generation on Board?
Even before transitioning the next generation, you need to be sure the next generation is willing and able to take on the responsibility to lead the family business into the future. Have you asked the next generation if that is what they want? Not everyone is wired the same. We have individuals that would embrace the opportunity to step into a leadership role. But there are some who see how hard you have worked in your career and are just as happy being involved in the business but are not willing to run it. In that case, you might be better off hiring an outside CEO for your business.
You might also have multiple family members looking to take over the company someday, so how do you select the best possible candidate as the next leader? Do you have a requirement for them to work off farm or will they need to apply for a leadership position?
Consider having an outside party conduct interviews for leadership positions for family members. How will you compensate your family when doing the same job as another employee of your operation? These are a few of the difficult questions that you’ll need to address when you decide to let the next generation take over.
Look Out for Your Best Interest, Too
Hopefully you also have the legalities of transferring the business complete well in advance of bringing in the next generation to run the business. If not, make sure you find an accountant and attorney who are both knowledgeable in the transfer of a family business. Once you start that process you should also discuss the plan with your lender to see what impact, if any, there will be on the business financial structure you are operating under today.
Finally, be a bit selfish and look out for your best interest. If you can make it work financially, make sure you set up enough of a nest egg so you can safely retire without having to worry about the volatile nature of hog farming you lived in for so many years. Take the time to enjoy life and relax for once.
More from Farm Journal's PORK:
5 Succession Planning Mistakes to Avoid
3 Reasons Your Family Could End Up in Court (And How to Avoid It)
