I have read many articles about how lack of succession planning puts the financial future of farms at risk.
They are attention grabbers and while I agree that the lack of or an ineffectively implemented succession plan can have financial implications, mostly farms survive.
These same articles rarely talk about the hidden price of a failed succession, which is the harm to relationships. Family relationships are on the frontline of the succession process. We have all heard the stories about broken families following botched successions.
If asked, the parents in those families would have said their key goals were “to keep the farm in the family and for the kids not to fight.” And yet fight they did. We all hate it when our kids fight, at whatever age.
In succession planning, there are hard and soft issues. Hard issues are those that can be measured in numbers such as net worth and profitability that can be dealt with in a technical manner.
Soft issues are the human side of the equation where we must understand the dynamics of the people involved. A poorly planned and executed plan may not only suffer negative financial and taxation consequences but can ruin family relationships.
Soft issues can include unresolved conflict within the family, lack of trust among family members, unrealistic expectations and how to be fair to everyone when only one child wants be a farmer. Other issues are fear of losing control and fear of putting the family wealth and a lifetime’s work at risk.
Farm owners face many difficult questions: how do I deal with unreasonable expectations or feelings of entitlement that children may have? How do I treat those that don’t want to farm? Can I still play a role in the farm business?
Soft issues deserve the same degree of attention as the other issues for an effective plan—and they are often the most challenging.
Communication is key
One of the first steps I take when assisting clients with succession planning is to interview all family members, those actively farming and those who are not.
I want to identify divergent interests but also those areas of common interest and expectations that can be built on to move the plan forward. I also want to identify potential obstacles, often soft issues that are difficult to quantify but can erode trust. There is no one-size-fits-all approach.
Often when we get down to the detailed planning, it’s mom and dad and the successor at the table but every family member’s view must be represented. Parents instinctively see their children as equals; they love them equally after all.
However, when it comes to the farm, and keeping it in the family, equal distribution of wealth is often impossible. That leads to the “fair versus equal” discussion and communication is the only way reach consensus and harmony.
It’s important to discuss uncomfortable issues and you must make sure that whatever comes out of that process is effectively communicated to all in the family.
You can plan all you like, but unless you communicate effectively around the issue of some children getting more than others, your succession plan could fail on one of its key objectives — family harmony. You may keep the farm in the family, but it will be a divided family.
Why start early?
Although reasons vary as to why people don’t plan for succession or delay it, it typically comes down to what David Maister, in his book Strategy and the Fat Smoker, describes: We put things off because “the reward (and pleasure) is in the future but the disruption, discomfort and discipline needed to get there are immediate.”
For many, the soft issues are especially uncomfortable and parents worry about upsetting the family dynamic.
Time is your friend – use it
In most situations, our clients have identified the successor or successors early on and planning could have begun far sooner, giving the family more options and time to plan and implement.
An early start gives family members the understanding of what to expect when the parents retire. It is important to think of succession planning not as an event but as a process that takes years. The sooner you start the more time you will have to work through the layers, evaluate multiple possibilities and have those important conversations.
Time is an enormous ally in managing the succession process while ensuring family relationships stay intact. Remember, families better their chances of success one conversation at a time.
Jonathan Small is a partner in MNP’s Farm Management Consulting practice in Red Deer, Alta. He can be reached at 1.403.356.1281 or firstname.lastname@example.org