It’s not the farm your parents started. Nor should it be.
Businesses, farms included, grow, evolve and often become more complex over time. As a result, they should be managed differently to achieve optimal results.
Adjusting management practices to keep pace with changes in the business is challenging and becomes even more difficult when it comes to succession.
There are two key transitions in succession: the transition of ownership and the transition of management.
Transitioning ownership hasn’t changed that significantly. Key aspects include:
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- the sale or transfer of assets or shares
- decisions about estate distribution
- decisions about what is fair and equitable
- strategies to mitigate tax
However, transitioning management is another story.
I remember discussions I once had with a farm family about their succession.
We were into the third meeting, and there was excellent acceptance from both the retiring and succeeding generations.
Everyone seemed to be on the same page and there was progress. There was a good understanding of what was going to happen from an ownership perspective, including timelines, tax strategies and who was going to get what.
However, when it was time to get into the details about what was going to happen with respect to management, I asked the retiring generation what aspects of management he was going to give up first. There was total silence.
The retiring farmer had had a general understanding about the importance of transitioning management and was supportive. However, he clearly had not thought through to the detail of the actual transition.
I don’t think it was about losing control, which is often a factor. It was more that he had built the farm to a point where the management was complicated and he wasn’t sure if his children were ready to assume the responsibilities.
There are two life cycles that exist in farm families: the business life cycle and the personal life cycle.
The traditional model has seen these life cycles run parallel.
The retiring generation takes control of the business in the “past” and builds it to what it looks like in the “present.”
Their personal life cycle tracks along with the business life cycles and reaches a point where there is going to be change: retirement. Ownership and management are going to transition to the next generation.
In the past, this typically meant that the farm was divided up among children who wanted to farm. In essence, the business life cycle started again. A new business life cycle ran parallel to new personal life cycles. The next generation took over and started managing the business more or less from a fresh start.
This is changing.
There are good reasons to carry on the business from its current stage of development and not cause it to start over. However, today’s businesses are larger and more complex, and with that comes greater demands on management.
This was causing the retiring farmer I was meeting with to pause.
He was confident that the children who were going to be running the business would be successful. They would take what had been built and continue with the development, accomplishing even greater things.
However, management of the farm was a different story.
Transitioning operations between generations essentially starts with the first tractor or combine ride. There is usually a long period of formal and informal development: a gradual process that culminates with the transfer of decision making.
The transitioning of marketing responsibility depends a lot on how formalized the management function is on the farm, but it typically requires more specific skill set development.
Financial and human resource management is increasingly important, especially if the business life cycle is to remain intact through transition.
Avoid making financial management a default function where John or Nancy are assigned responsibility because no one else will or wants to do it. It’s much more than just a bookkeeping function.
