“Management Issues”

Those of you who equate farm succession planning with farm estate planning may very well miss this key element in the equation.

Estate planning is actually the end game, the distribution of assets at the end of time. If you are using this definition for passing down your farm you may not see farm succession planning for what it is, a process.

Succession planning should be begun as soon as possible, so the decisions will have years to develop. The old saying, “the best time to plant an oak tree was 20 years ago, the next best time is today” applies to passing down the farm.

Are the farm’s successors ready to run the place (make decisions and shoulder the risks) today? If not why not, in your opinion of course?

Failure to have successors in place is a critical stumbling block that often keeps farmers from even getting started in the process of planning for the long term future of the operation, even when they know they should and understand the costs of not doing so.

Are the senior generation owners of your farm like the trapeze artists who won’t let go of the swing so they can fly through the air? They stand on the little platform while their “catcher” swings back and forth and back and forth until they lose the required momentum.

Maybe there is a legitimate fear of letting go, maybe not.

Maybe the successors have only been taught to do one thing really well – take directions. Maybe they have never been taught how to make reasoned decisions consistently.

If you are like virtually every farmer I have ever met or even heard of, you have between 70 and 90 percent of everything you own tied up directly or indirectly in the farm. No wonder the senior generation won’t let go, and when they do they are likely to second guess their successors decisions – continually pulling the strings.

I guess that’s why so many of the most qualified successors leave the farm, letting those willing to “take direction” hang around until the senior generation gets around to doing something.

Or they attempt to buy some or part of the place and start again – the sure road to failure for everybody. Our economy and our country’s tax policies will guarantee the failure of this approach every time.

Or they leave farming altogether because they can see that it will be impossible to ever grow the new farm business to the place where their folks farm is today.

Three Important Management Topics For Your Consideration

Competence:
Passing down the farm requires competent successors. Unless the next generation on the farm can effectively manage a growing farm business, there is really no other alternative other than the sale or liquidation of the farm. Harsh, perhaps, but true. The challenges of running a growing business (and it must grow to meet its future commitments and obligations) requires 21st Century management skills. Therefore ways of measuring and assuring everybody (including the bankers and other creditors) that the successors are competent are essential components of passing down the farm.

Organization:
I remember a lawyer telling me a long time ago that, “farms are organized the way they’re organized because that’s the way they were (originally) organized.” Over the last twenty-five years I’ve seen this to be true most of the time. Your farm’s organization going forward will need updating if you expect to achieve succession success. Even the most competent managers/successors can’t operate the farm using an inadequate or ineffective organization structure. While the ways a farm business can be organized are almost infinitely varied, one thing is always true: the organization must have clearly defined and universally understood lines of authority and responsibility.

Compensation:
Few would dispute the fact that every employee, manager, and owner should be properly compensated. However there can often be a lot of disagreement and discussion surrounding the concept of “proper.” Accurately defined and properly administered compensation systems can help to minimize the energy draining “discussions” that often create or perpetuate bad feelings and the resulting costs associated with ongoing disagreement – keeping people focusing on the negatives rather than the positive aspects of being in business with their family.

What should you be doing today to address what can only be described as a “crisis of confidence” that what’s in everyone’s heart is not on paper? Isn’t it important to better understand what employees, owners, successors, and family members think about the farm’s organizational strengths and weaknesses? And to objectively look at the adequacy of the farm’s future management – while there is still time to make the mid-course corrections necessary?

Here are some talking points to get you started, use them to open up discussion (and debate) among yourselves. Later you’ll have solid information to take to your professional advisors. They will leverage these initial discussions with their wide experience to refine the ultimate decisions upon which the documents that will control the future are created.

Since every farm is bigger or smaller, more or less complex, and has more or fewer employees than every other farm – use these discussion points as a guide. Some will be more relevant than others, each one however must be adequately addressed based on your particular circumstances.

Does the successor generation have adequate financial management ability?Do successors have the ability to plan for the future of the business beyond the next few growing seasons?

Can the successors communicate effectively with the rest of the farm organization, including the extended family members?

Are successors able to effectively manage the activities of others – getting the right people to do the right jobs for the right reasons?

Is there adequate, for your organization’s size, management depth. Cross training and continually helping the employees and managers grow?

Are financial and operating goals clearly and objectively defined?

Are financial statements seen by all key people?

Are performance goals measurable and known by everyone?

Are the responsibilities for each of the most important financial and operating goals clearly assigned to a specific person?

In the spirit of do-it-yourself management development I will be sharing two tactics I have seen used successfully for as long as I have been in business. One, I call it “bridge management” will be covered in the email I’ll be sending you in a few days.

The other, often referred to an “experience exchange” will be the subject of the last session in this series. It is by far the most valuable took for long term planning you are likely to come across, ever – and I will spend a lot of time both describing it and showing you step by step how to create your own experience exchange group to leverage the power and experiences of your peers.

Until next time.

All the best!

Wayne Messick