Now that summer’s on the doorstep, the kids are home from school, and your planning and preparation for the growing season are over, it’s an ideal time to have some important conversations with your family members around succession planning.
As anyone who has gone through the process knows, succession planning within the family can be a complicated business. There are often gaps between the parents’ and their children’s expectations.
While mom and dad may hope the next generation will want to take over the farm one day, they are often skeptical whether the would-be farmers in the family really understand the reality they are in for.
At the same time, the next generation often has their own ideas as to how they plan to manage the farm, and they are equally skeptical about sticking with the status quo.
So how and when do you start to bridge that gap? Too soon, and the next generation may simply not be ready to take on any responsibilities. Too late, and you may be facing a situation where the next generation has suddenly decided farming is not for them and you are left without a Plan B.
The important question to consider is: at what point(s) should the next generation become active participants in business planning meetings?
When does it make sense for them to have an active voice when negotiating mortgages and operating loans? Simply put, who decides when the time is right to increase their role in day-to-day operations?
Grooming the next generation for the transition can actually start before those conversations. Early preparation will help to determine if they are even a fit for running the operation. Is farming really their passion? If they do have a passion for the business, is it the type of farming they want to do? What skills do they bring? What skills are they lacking?
These are all questions that need to be answered before giving them a more active role in the operation. That’s why it is essential to have clear and candid discussions around your goals and aspirations to see if they’re consistent with theirs — or not.
Once a successor has expressed a serious interest, then you can start planning. Here are some suggestions:
- Write up a business plan. It is not enough to tell the next generation “work hard and this will all be yours.” At the end of the day, a promise is not a contract. Unless you have something in writing, you don’t have a good business plan.
- Start introducing them to the people that matter. Beyond working in the field, they need to get a clearer picture of all aspects of running the business. You can start by including them in your meetings with bankers, accountants and lawyers.
- Communicate constantly. Make sure that everyone’s thoughts are captured and that decisions are shared. This sounds easy, but our experience has shown this is one of the most difficult parts of succession planning.
- Clarify job descriptions and assess skills gaps. Sometimes attention is paid to the transfer of assets at the expense of transferring decision-making and management. When the kids are younger, there is still time to close that skills gap well ahead of the transfer. Take the time to consider what management skills they have — or lack — and start planning how they can acquire them.
- Make them aware of the risks and challenges. While they may have some great progressive ideas, they may not be fully aware of the challenges inherent in them. A financial adviser can help present different scenarios and their potential impact so the successor is well educated on the consequences.
- Send your successor out into the world. This may seem counterintuitive, but spending time in another operation or profession — or simply travelling the world — will give them a better perspective on their future ambitions and help them acquire additional skills. Not only will they come back with new ideas, they will have had the time to consider how committed they are to taking over the business well before you make the final transition.
- “Fair is not equal.” You need to take the time to understand each of your family members’ goals, their contributions, and whether they are the right fit for your operation. If one or more of your children decide not to be engaged in the business, what kind of agreements do you have in place to ensure a fair division of equity?
The worst thing you can do is put off succession planning longer than you should. When that happens, there’s a good chance your potential successor will simply get tired of waiting and move on to other pursuits. Even if you’re not ready to make a wholesale transition, there’s no reason you can’t get them involved early in the process.