Small Business Succession Planning
Tip Of The Week

A meeting of one…or more!

I just had a meeting with myself, and I took really good notes! Remember to do the professional and required actions of your business structure and document them! Check your operating agreements, by-laws, contracts and structure documents for the requirements. Even if not required, a year end review and planning a strategy is a great boost toward productivity, profitability and peace of mind.

Farm cap sends the right signal!

When you need to focus, let it be known. I know of a farming dad who believes that if you're not outside physically working, you're not farming! Of course a universal sign of being "at work" is wearing a farm cap. Now when his son is at the computer transferring field data, reviewing an order, checking markets, or working on the books, the son puts on the clean farm cap that signals to his dad, "I'm working!" Both are happy and there is a lot less grumbling going on.

The sponges are ready to absorb

Yes, they're listening to what you say and don't say. Your children begin quite young to form their "picture and attitude" about working on the farm and in a family business. If they never hear anything positive, they'll be negative. If they never hear anything at all, they'll be a sponge waiting to absorb someone else's opinion. One college senior told me about his growing up years on his family's farm. "Dad headed out early in the mornings, mumbling to himself about all he had to do and deal with. He came back in the evening, hungry and tired, mumbling to himself about all he had still to do and deal with. I knew right away, I did not want to work in a job that turned me into that Dad."

Contingency plan part of business plan

What does your annual meeting of the family business look and sound like? Hope it includes an honest review and celebration of the year's work just past…then the creation of a business plan and goals with responsibilities which build excitement for the year ahead. Then, don't forget a contingency plan, just in case! What if mad cow returns? Crops hailed out? A political decision turns off your irrigation water? Energy costs soar? Someone leaves the business - death, divorce, disability, disillusionment? It's best to think ahead for a Plan B plan while the brain is running on more than crisis adrenaline.

Finding the right fit in the business

In her book, Your Natural Gifts, author Margaret Broadly explains many people can do a multitude of jobs well, but to be truly happy and really successful, the job must be in the area of your natural abilities. So, expose the next generation to a multitude of jobs which make up your farm or ranch business - animal science, agronomy, marketing, accounting, genetics, compliance, machinery, people management, transportation and more. Not only will they see the interrelationship of the areas of your business, you just might have a chance to see their natural talents in action.

Does your farm business allow you to give?

Christmas is a very special season of giving. Have you shared with your young and growing children what this family business of yours has allowed you to give back to the community, your faith, and your chosen charities? Knowing you can contribute to worthy needs and causes bigger than oneself is important to share. It allows a heart to swell with gratitude because the hard work you have done and the blessings you have been given make a positive difference in the lives of others.

Wedding gift

One of the best wedding gifts you can give your adult child and the new spouse is a "No Trespassing" sign to put in their yard. The meaning? "Unless it is an emergency we, your in-laws/parents, will not walk into your home without calling first or having permission. If you are in the yard, I may wave or stop, but I want you to have your space and your own place." Then make sure you honor the gift you have given!

Your dream or theirs?

A distraught young farmer was facing severe financial problems. He shared with me that he just had to keep that farm going for his son. Then I learned his son was 11 months old! I'm just wondering if business owners ever consider that their dreams and wishes may not be that of their children.

Trust and respect - a generational two-way street

I've yet to see a successful family business transition without trust and respect. The senior generation must trust the next generation to make sound, calculated business and financial decisions and the next generation must respect the business as a legacy, not just a financial asset. Shortcutting either of these relationships often leads to the demise of relationships and the business.

Adopt your conflict resolutions procedure before conflict arises

Don't forget to include a conflict resolution plan as you set up a generational or family business. This plan is an adopted procedure - discussed, voted on and recorded in the minutes of the first organizational meeting. It may include: when the item/issue will be discussed; how will it be discussed; how will decisions be made; an agreement to seek a conflict resolution mediator or arbitrator if there is an impasse; how that individual would be chosen; and an agreement to accept the resolution.

Synergy brings peace with decisions

An estate plan turns out best when it is a collaborative effort - husband and wife on the same page and a key advisory team including a CPA, lawyer, financial planner, banker and insurance professional. The synergy of team creates a sense of peace with your decisions. This helps you significantly as you deal with the emotions, assumptions and opinions of others.

Mentors beyond Mom and Dad

The summer jobs of the High School years can provide valuable opportunities. Have other respected non-family employees teach and manage your growing children - either on your own farm or nearby. Working beside a mentor other than Dad and Mom allows them to begin with a blank slate and build their results upon behaviors which can be fairly judged.

Take the high road

It's always best to take the high road when dealing with in-laws. Being pleasant and polite and honoring the boundaries they have set for their family and home go a long way in building positive relationships.

A final lesson with wise words

With his will, a father included a letter to his children explaining his directives and closing with wise words…"If you do not like what is in my will, do not blame your mother or your brother. The decisions represented on these papers have been thought out carefully and intentionally written. The distribution is not equal, but neither has been the effort that created this estate."

Leadership or Labor – A balancing act of needs

The leader of your business has many responsibilities: clarifying the vision in order to focus the results; analyzing the finances; overseeing the management & work teams; directing the effective use of all assets and natural resources; and maintaining compliance and good public relations. Of course, it's easy to push those leadership jobs aside and relish the routine of day to day labor. The challenge? Time for labor often trumps time for leadership. Gradually (or suddenly) the performance of the business deteriorates.

Why life insurance?

There are many reasons why you and your business might consider life insurance. It could provide for a spouse and dependent children; fund a buy out; provide a source of asset distribution (especially for those not inheriting the business); provide funds for the business to replace a key employee; pay debt; or pay estate settlement costs. By the way, some lenders require a business "insure" its key manager so a worthy replacement could be hired to help with the transition.

Long term care expenses can threaten the long term existence of a business

Many family members think… "Let's get the farm assets out of our parents' names… then the business assets will be protected." Better look closer and get good advice so you understand the facts. There may a look-back period for transfers prior to the application for government assistance. As they say, "The devil's in the details!"

As you create, plan how to dissolve

Never create a structure with jointly held assets (partnerships, companies, corporations, etc.) without a second legal document of how it would be dissolved. Doing this when the times are good, sure beats trying to figure it out when the times are tough.

Look-back to be fair ahead

Many times the siblings "farming the farm" inherit the farm assets and a "promise" to the family that they will continue the legacy of the land. To ensure that statement, an attorney might help you develop a look-back clause as part of the terms. This includes, for example, if the farming siblings should sell the real estate at a higher use value during the following (7) years, the appreciation would be shared by all children.

"The Do-Nothing-Plan" of estate planning

This by far may be the easiest option for the senior generation, but it may create a heck of a mess for the next generation, especially if your assets affect the continuation of a business. If you have generations farming with you and the business depends on assets in your name, meet with your advisors. They'll have better options. It will cost you a little, but doing nothing may cost the next generation the farm!

Learn the lesson so you don't repeat the mistakes

Parents called wanting help with their multifaceted family businesses — During the past few years, they had formed 4 separate partnerships, one with each adult child, and each a different enterprise. Problem was, parents were already repeating some of the mistakes from a former failed "senior generation partnership." Do not start a new business until you figure out what went wrong with the previous one.

Skin in the game

It's critical for the succession of a business and maturing of the next generation of potential owners that each "adult child" has his/her own "skin" in the game. What has he/she contributed financially toward ownership? What has he/she personally "sacrificed" to have professional asset growth? Giving and gifting of farm/ranch assets may be part of succession planning… but there is also a place for purchasing, buy-sell agreements, and long term leases.

Patting oneself on the back

Individuals in a family business increase their motivation, productivity and loyalty if each has an expertise within the business. It might be engineering and machinery, accounting and financial analysis, herdsmenship and genetics, agronomy and marketing. Yes, there are times we all work together, and there are times we need a sense of individual accomplishment.

Sometimes you don't know what you need till it's gone

A dear friend wrote… "Please advise the income provider in a family to have adequate life insurance. I cannot imagine the devastating emotional stress on those left behind, often raising a young family, who must also immediately find a way to financially support the small children. Our young son-in-law died in his sleep. Fortunately he had planned ahead for something he, nor anyone else, expected."

Foundation doesn't change

People, even generations, come and go in a successful family business. But the business foundation of needing good documents, strong and efficient management, visionary and effective leadership, and trusted key advisors remains the same. Make sure you have laid a solid foundation upon which others may build. Then a legacy can continue.

The farm will still be there!

Do you know that if you take a break from the farm or ranch for a week, when you return the farm or ranch will still be there? Recently a farmer told me, "I manage a $5 million dollar farm operation and I just can't leave!" My reply…"Let's see. You can manage a successful, $5 million business year after year, and you can't figure out how you can be gone for 5 days?" Leaders in a business – clarify the vision, encourage and build others, work hard… then GO!

Making a mistake

When an employee makes a mistake while working for a non-family boss, he/she asks, "What happened? Why did it happen? How will you keep it from happening again?" Then you learn the lesson and get back to work. When you make a mistake in a family business, some never ever forget it. It often becomes the fodder at family gatherings for years and years … "Did you hear the dumb thing ___ did?" Humiliation is not a very good form of positive motivation.

Small steps to climb mountains

Define your goal; identify the rewards; begin with what you know; ask for help along the way. These small steps will help you climb even biggest of business mountains.

"Go ahead and come back."

Those five words were the verbal instructions from my husband on-the-ground, to me in-the-tractor, as he was also waving his hands from side to side. I just couldn't keep my laughter from bubbling out as he looked at me thinking, "What's wrong with you woman? Don't you understand?" Have you thought about the phrases you use or the hand signals you give? Sometimes what's clear to one is as clear as mud to the other!

Life after death

Talking about your estate while you are living, doesn't mean others want you dead. Instead it is a way of honoring all you have done and the legacy you may wish to leave.

You mean I have to sign?

Make sure your partner knows that personal guarantees for business loans often require the signature of the spouse, whether they are active in the business or not. Rather than a "don't ask why, just sign" family attitude, it is helpful to have the lender explain the reason for this policy to your spouse.

Do you see what I see?

Take a drive-by look at your farmstead. Do you see what others see? Neatness is a good "commercial" for our business and for agriculture. It also is a statement of respect for others on your business team and for the resources we are entrusted to manage.

How much is too much?

The business must decide, "How much money can be spent before it must be a group decision?" I know of one member of a family business who bid on and purchased a track of farm ground, then came home and "informed" other farm members what "they" had just purchased. The others didn't even know land was on the "buying block" and sure as heck didn't think it was in the budget!

Communication is the bloodstream

In your business listen; express; be approachable; be respectful. Remember, silence means consensus.

Defining the demands

It's critically important that during your interview of potential employees (including family members) you clearly state, "Agriculture is a Mother Nature driven profession. This means the business strives to give promised time off, but there will be demands during peak work timeframes, for example planting, harvest, or calving. If you are asked to put

Small Business Succession Planning Tip Of The Week