Farm Succession Planning » Family farm succession

Four Solutions For a Successful Family Business Succession

admin — Thu, 17 Jun 2010 12:18:20 +0000

According to The Practical Lawyer, 90% of all businesses in the United States are family businesses. These are businesses owned or controlled by members of the same family.

Family owned businesses are very important to the US economy, creating 60% of total US employment, 78% of all new jobs, and 75% of wages paid. Over the next 4-5 years, 40% of these family businesses will be handing off the reigns of control to the succeeding generation.

However, it is predicted that only 12% of businesses that pass to the second generation will survive to the third generation.

Numerous Bay Area small businesses will face a large estate tax during the next 5-10 years. Being forced to pay hefty tax bill prevents owners from having sufficient capital to keep the business in operation.

Yet, perhaps more overlooked by business owners are issues completely unrelated to estate taxes. First, dysfunctional family power dynamics and sibling rivalry can curb preparation of the succeeding generation for management.

Second, even if there no overt conflict exists, older generations may not wish to let go of management because of the fear of loosing their leadership role in the family.

Third, significant age differences between parent managers and their children (often 20 to 35 years) can lead to a disconnect between managers and protégés, reflected by divergent expectations on how the business should grow in the future.

To address these concerns, family business owners should consider the following four strategies. First, have an ownership system set up that can help ease the tax bill. The structure of the family business, such as a corporation, partnership, or an LLC, can ensure that the business will be kept in the family.

Second, take concrete steps to prepare the succeeding generation for management. Ensure that there are regular family meetings where the short and long term goals of the business are discussed.

A family meeting serves as a forum where the older generation can communicate the values upon which the business was built, and where protégés may express where they see the business going and their willingness to manage.

The family meeting provides an opportunity to identify which protégé can be groomed as an heir. Moreover, it can serve as a launching point for the delegation of management responsibilities. A third party objective participant in the family meeting, such as a family business attorney, can help identify an appropriate heir to groom.

Finally, write up a family business mission statement. This document will articulate the values and direction of the family business both now and for future generations. Not only does such a statement inform future managers of the goals and direction of the business, it also serves as a lasting testament for the future generations of family business owners.

John Martin is a lawyer in Menlo Park, California practicing in the areas of estate planning and family business law. http://www.johncmartinlaw.com

Article Source: http://EzineArticles.com/?expert=John_C._Martin

Farm Succession Plans Almost Always Fail

admin — Mon, 14 Sep 2009 17:38:05 +0000

During my career I have found that most succession plans fail.

The plan itself might or might not have achieved the family’s objectives for farm succession and transition to the next generation, but it ran out of gas before it was ever completed.

It ran out of gas because there was no one in charge – no one without an axe to grind that is, who was willing to ask the hard questions and push for the answers – so the plans could actually be created and implemented based on good information.

Most succession plans or estate plans or whatever you choose to call them are sold.

That is, someone sold you or your folks or whoever is in charge on the idea that planning for the future succession of the farm is a good thing to do and they are just the person to help you do it.

There’s certainly nothing wrong with that, often we must be “sold” in order to break the inertia that surrounds us. When we were kids we had to be “sold” on taking a bath, brushing our teeth, and putting our toys away. Nothing really changes – the things we know down deep we really ought to do won’t get done unless we’re sold on the benefits of doing them right now.

It’s just that we we’re sold something we either have to stay sold or we’ll lapse into whatever “someday it will all work out” frame of mind we feel comfortable in.

For us to stay sold on farm succession and planning we’ve got to have someone in charge of the process who’ll collect the information the advisors require. When no one is in charge the data received, if it ever is, by your advisors will probably be inconsistent and/or inaccurate.

For example I have heard of farmers, not someone like you of course, providing low-ball figures to their estate planning adviser so they’ll come up with more favorable figures – for them. Inaccurate data at planning means unpredictable results at settlement time. Not what you really want is it?

And what about our advisers inflicted by the NIH syndrome? If you or your folks have advisors who believe that the last good idea to come along was one of theirs – that ideas “not invented here” are not worth considering – you’ve got a potential problem on your hands. What if they are not only wrong – they are unwilling to hear your thoughts or those of other advisors?

I have seen this attitude cause fathers and sons to end up on opposite sides of a conflict that was actually created by an advisor so full of their own infallibility that nothing could be done to move the process forward and away from “the way we’ve always done it.”

Farm succession and ownership transition planning is too important to be left to chance, to the prejudices of others, or even to the pulls and pushes of our personal loyalties.

Naturally your professional advisors want to help. They most likely have the competence necessary to help you work through the technical and planning issues – once the personal goals and wishes are clearly identified.

But you advisors need your help too. They need for you to take charge of the process – it’s your farm – it’s your responsibility – gathering the answers to what’s important is your role – by putting somebody in charge. Somebody who’ll do the leg work.

That somebody we call the planning coordinator, the person appointed who will make things happen.

When it comes succession and planning the role of the planning coordinator is to act as a sounding board – listening to everyone, and I mean everyone. They must also make sure the word gets through to everyone – whether it’s good news or not. They must push for answers to their questions always asking for decisions and actions! And they set and keep the planning schedule – keep the heat on – focus on results.

The good news …

It does not require any experience to be the planning coordinator – in fact common sense is really all you need.

That and a desire to be part of the solution.

Wayne Messick

Link to PressBox – why most famr su succession plans fail

Farm Succession Planning is Passing Down the Farm, Right?

admin — Thu, 13 Aug 2009 19:40:44 +0000

Some of you got it right, passing down the farm is farm succession from the current generation of owners to the next, the folks who are going to be owning and running the farm in the 21st. Century.

Almost nine years ago we registered our domain name because we had been told that the older a domain name is, all other things being equal, the better it is for search engine rankings. And we knew we were going to create a farm succession and planning checklist someday – so we’d be ready, #1 on Google.

Today as we begin to populate our web site with new and updated content about farm succession and planning, we look at our listing and see that sure enough we’re right up toward the top of the search engines, out of the many thousands of other web sites.

What we realized, after doing some extensive keyword investigation, is that being #1 is meaningless since almost no one ever types the expression “passing down the farm” into Google or any of the other search engines. We made the obvious mistake of thinking that everyone else used the expression – when they don’t. Too much time reading our own press releases I guess.

Passing down the farm is the benefit – the goal, the objective on virtually every farmer’s mind. It is not what they think of when the go online looking for the tools, techniques, and strategies required to achieve the results they seek however.

The benefits of the passing down the farm succession process begin the day you get serious about designing the future you want for your farm and your family. And the process continues forever, just like your family’s involvement in the farm will extend far beyond the lifetimes of everyone living today.

Here three key planning elements uniquely intertwined with each other to create the succession and planning process we call passing down the farm.

Strategic planning is a key element of the farm succession and planning process. You may not use such a high toned expression but that’s what you’re doing when you plan beyond the next twelve months – consistently rolling your planning ahead of you as you go.

Farm strategic planning is also about management training and leadership development for your successors so they’ll be ready to assume full responsibility when the time is right. There are some mistakes your farm can absorb and keep right on chugging along and there are some that will totally destroy what has been created.

Start today by identifying who’s going to farm in the next generation and then get started with the training they’ll need to do so.

Succession planning is the process where you pick the people to run the place in the future and begin the process of empowering them to conserve what you’ve built and leverage your efforts to grow the operation bigger in the future.

Growth is critical in order to generate the profits required to meet the security needs of the retiring generation, provide a fair share of the farm’s value to the off farm heirs, and reward the successors for their risks and hard work.

When you start now to open up areas of responsibility, in the eyes of your successors not just yours, you’ll send the right messages about your intentions for the future.

Estate planning, the wills, trusts, buy-sell agreements, and all the contracts required to fulfill you succession and planning requirements DO NOT come last.

Farm estate planning is critical, too critical to be put off, because it establishes the ground rules, faces the tax consequences, and establishes in law the practical strategies that will result in your wishes being spelled out for all to see. Estate planning decisions need to be made today based on what you know today, where everything is today, and based on the best advice available today.

As time goes by and the other elements of your farm succession plan fall into place you simply have your advisors update your estate planning documents. How many movies have you seen where the old tyrant died without having changed his will for decades – leaving the heirs and those who though they were heirs to fight over the spoils, resulting in another mystery for Lt.Columbo to solve. Don’t let that be you!

Passing down the farm then is the result. Your farm and family’s unique situation addressed using well considered strategies that are being used successfully by others.

Over the last thirty years people have said to me, “but Wayne, our farm is different” and it is. Often this comment was made in an effort to convince me that their situation was so unique it defied the experts and therefore their lack of planning was justified.

As you can see, passing down the farm is a process, one that does not have to be complicated unless you make it so.

The fact is, you and only you have the power to make the succession and planning decisions necessary, you alone have the authority to take the actions required and you alone are responsible for the outcome of your succession and planning process, whether they are the result of thoughts, conversations, and negotiations or by luck or misfortune.

If you are serious about farm succession, or if you are a professional involved in farm succession planning – or an farm association executive whose members desire to see their farm continue into the next generation, you are in the right place!

Farm Succession When You Get “A Round Tuit”

admin — Fri, 11 Sep 2009 00:03:57 +0000

For a farm succession plan to succeed there must be a timetable for specific actions to take place. Everyone involved must be able to see when certain benchmarks are reached.

If there is no agreement on when certain elements of the process will be put in place – why should they believe you are really serious about farm succession planning this time either?

Remember the first time you told someone that you’d do something, like clean the shed or wash the pickup, when you get around to it. And they whipped out a wooden coin that was stamped “Round Tuit” across it. Ok, so now you have the round tuit – when are you going to start on the shed?

Farm succession planning lends itself perfectly to being put off doesn’t it? If you hadn’t been putting it off all this time you would have no reason to read this would you?

Let’s face it, we all spend far too much time living on “someday isle” and since the farm succession planning issues reside there as well – we’ll get started on the discussion after the crops are in, after the holidays, after the crops are planted, after vacation, after the association meeting, or worst of all – after we have everything figured out.

It does not seem to occur to people that the process of farm succession, passing down the farm – is really about figuring out what we want to happen. It’s about getting clear on what’s important to us, our spouses, and our families.

Farm succession is 90% knowing what you want the future to look like and 10% having the documents and contracts in place to see that it will all come together in the end.

Here are 7 things you can do to get everyone on board with the process.

Each one can be put on the timetable and checked off when it is completed. That will get everyone’s attention that, yes this time you really are serious.

1) Have your first family meeting. This is the starting point for your farm succession planning process. Make it a special event, close the doors and stay at it for as long as it takes. Everybody’s got to be there, no exceptions, no excuses, and no distractions.

2) Appoint the planning coordinator. The number one thing to come out of that first meeting is having someone assigned the responsibility of managing the succession planning process. This person must have the power to act and getting that out in the open at the first family meeting is critical.

3) List the priorities. The first meeting and the one-on-one meetings to follow are important places to begin sorting out the individual priorities of everyone involved.

4) Pick off the urgent concerns. There may be a few issues that resonate with everybody, things everyone agrees are important and that can be done right away. Doing them is more than a sign of good faith – it can have immediate benefits. Getting wills up to date or insurance beneficiaries changed come to mind as examples.

5) Are any leverageable actions possible? When the priorities are being discussed a question or two may arise, the answer to which will impact greatly all the future decisions. Can this be handled up front so all future discussions include this new information? For example asking your son the Doctor right away if he has absolutely given up on moving back home and milking cows three times a day for the rest of his life. Now you can get on with the planning.

6) Is there any low hanging fruit, from a planning point of view? By that I mean are there actions that can be taken today that will impact the process, take you toward your ultimate objectives – that can be done quickly and easily and send a message to everyone?

7) Set the date for the next meeting. When will you have the next meeting and what will be done by then and by whom? Someone must be holding everyone accountable. Get people to commit to the next meeting, no exceptions and no excuses. make it far enough in the future to get it on everyone’s busy schedule and close enough to keep the momentum going.

You’ll be amazed how people respond to the timetable. Those who are serious will be all over it. The ones who are not going to be part of the solution anyway will show themselves earlier rather than later.

Farm succession and planning are too important to be allowed to drift along until you get a Round Tuit!

If you are serious about farm succession, or if you are a professional involved in farm succession planning – or an farm association executive, you are in the right place!

Wayne Messick

Farm Succession Planning – Schedule Regular Meetings to Review Your Progress

admin — Tue, 15 Sep 2009 17:17:33 +0000

The farm succession planning process, and it is indeed a process, generally begins when someone has convinced a member of the family to have that first family meeting. The idea, at least in the minds of a few is that this meeting will set in motion, like a snowball rolling down hill, the succession planning process with enough momentum to sweep aside any detractors.

The sad truth is that so much effort went into getting people in the same room at the same time that first time, it gets harder and harder to get them to repeat the process. If things went smoothly they’re likely to feel that “they don’t need me” and if there was a room full of yelling and disagreement many will want to avoid a repeat performance.

Often those in favor of the status quo are the folks with the power, so when they finally agree to the first meeting they want to have it at the coffee shop. They’ll say it’s so they won’t be interrupted but it’s really so they can control the agenda, walking out because they “have to get back” to the farm.

Or they’ll insist that the family meeting take place at the end of the usual Monday morning meeting. The help will be hanging around wondering what’s going on and everybody will be anxious to get back to work – so that should cut the meeting short and stifle a any potential enthusiasm for a follow up.

The secret to a successful succession planning meeting – one that moves the ball forward, gives people the feeling that progress is being made and convinces them that they don’t want to miss what’s coming is actually straightforward.

They should be special meetings called for that single purpose and that purpose alone. Everyone in attendance every time. And it’s not usually important whose house the meeting is at – just that there are no interruptions.

There are all sorts of potential psychological triggers – where the meetings are held may be an important consideration for your family or not. Perhaps you’ll rotate the location so everyone who wants to host a meeting can do so.

At the first meeting, no matter whose idea it was or where it is held, someone must be anointed as the planning coordinator and charged with – among other things, setting the date/location of the next meeting.

Space the meetings far enough in advance that there will have been actions taken and tasks completed to report on when people get together the next time. No one enjoys getting together just to rehash was wasn’t done. What’s the point of that?

The time between meetings will be when the actions taken are communicated with the planning coordinator. That person, maybe a member of the farm’s successor generation will assemble what has been done to create the agenda for the upcoming meeting – where either they or the person responsible will be delivering the results to all in attendance.

The meeting opens with updates of what has happened or not followed by a discussion – how everyone feels about what they’ve learned and what other options seem to be presenting themselves based on the new information. That tends to lead the discussion toward the next steps to be taken.

The planning coordinator and the rest of the family decide on what the next actions should be and who should be responsible for them. These are the tasks to be completed by the next meeting where they’ll be reported on and discussed.

There will always be those who say they’ll be responsible for some task or another and then fail to follow through. The natural tendency, especially in families, is to focus a lot of attention on why they didn’t do what they said they were going to do and how it is holding up the whole process.

I have seen the entire farm succession planning process come to a screeching halt because someone, intentionally or otherwise, dropped the ball – never “got around” to giving the lawyer their permission to speak with the planning coordinator or were always “too busy” to have their accountant do the various calculations needed as part of the discussion.

They had used their power to bring the process to a halt foolishly believing that ignoring and putting off the planning will somehow make the consequences of their inaction go away.

That’s why the appointment of a strong person as the planning coordinator at that first meeting is so important. That first meeting, or within hours afterwards, is when that planning coordinator should be given the authority – in writing if necessary – to ask the questions required of everyone involved.

With that authorization in hand the planning coordinator can push for the details and for the subsequent meetings.

These meetings are the key to keeping the planning for succession process moving, keeping the advisors on task, and provide a visible opportunity to put checkmarks in the boxes of the steps that have been completed.

These farm succession meetings keep the process on everyone’s mind, reassuring them all that this is important and it is being addressed – not just something than gets rolled out once a year to keep them quiet.

Wayne Messick

Farm Succession Planning » Family farm succession

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