Putting specific management issues into context can be a useful exercise.
Context places the issue in relative terms, which in turn helps with the decision making process.
One of the techniques I use to gain a better understanding of specific management issues facing farmers is to compare the current situation to what it would have looked like 10 years ago. I then fast forward 10 years and re-examine the issue.
This tactic provides me with context, and with that a better understanding of the issue.
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Succession planning has three areas:
- taxation, legal, insurance and investment
- soft issues, such as fair and equal, entitlement, sweat equity, successor, conflict and communication
- farm business management
Of the three, the most significant change, in terms of succession planning, is in farm business management.
That is not meant to understate the importance of the other two areas. Developing and implementing taxation, legal, insurance and investment strategies to the best advantage of the farm family’s circumstances will always be important in succession planning. Similarly, considering and attending to the soft issues can be pivotal in implementing a successful transition.
However, for there to be a successful intergenerational transition, there has to be a successful business.
Let’s think about farm business management from the 10-now-10 principle.
Farms today are typically larger and more complex than 10 years ago. Capital investment and leverage has increased. Margins remain relatively narrow. Volatility is a reality.
The next generation is faced with assuming the management of a business that can have several million dollars in assets.
What will these factors look like 10 years from now? What are the trends?
Who does what on a farm is well understood. It’s how farms are managed. Typically though, the management functions are not formalized (written down) and not clearly and openly communicated.
This can become a problem when managing the business. It often can be a big issue when the farm is working through the implementation of a succession plan.
How does a family begin to plan for the transfer of management functions without a clear and communicated understanding of how the business has been managed successfully to date. What managerial development (hands-on and external training) needs to occur?
This is a two step process.
The first step is to document the current and future organizational structure of the business:
- relevant management functions of the business
- tasks associated with each management function
- who fulfills the management roles associated with each function
The second step should be to create current and future (three to five year) organizational charts. Once developed, plans to transfer the business management functions to the next generation can be developed and implemented. This is a relatively straightforward process.
In my opinion, it is one of the most helpful exercises that farm families can do when contemplating succession planning and intergenerational transition.
