While many families begin succession planning when Mom and Dad are already thinking about retirement, management consultants say this is late in the process.
“You should start thinking about succession as soon as the farm is yours,” says Jonathon Small, a MNP Farm Management Consultant. “While it might be the hardest time to do it, starting your plan with your young family just after you have taken over the farm is the perfect time to start planning.”
Small believes families can start preparing their kids for succession when they are in preschool. “You groom them and prepare them. They understand what the family business is about from an early age and what it involves. The better you do that, the easier it becomes later on.”
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“I’ve worked with families where the successors are 25 or 30 years old and we can help them enormously, but part of the reason they need help is because they have left it until this point.”
THINK AHEAD
The farther a family is away from the actual transition, the more they need something “big picture” such as a strategic plan. Ask questions such as: What do we want to pass on to our kids? Is it what we have now or does it look different? This will help to define the path going forward for the next 20 years.
Involving the kids in this early stage is important. If the kids feel like they are part of the family business it won’t be seen as competition for the parents’ attention. “If parents can find a way for the kids to be involved, to have an interest in the business and find it appealing, you are building the partnership,” says Small.
Later as the kids get older, planning becomes more tactical. Starting with the end in mind will provide some clarity about what they want to happen, and what they need to do today to get closer to that final goal. Visioning, or developing a vision statement that can be agreed upon, is an important part of the process.
TRANSITION SMART
Succession planning is very much a team sport. There may need to be two, three or four experts to help with a complete plan. This group needs to function as a team and be a team that will communicate with itself and support the goal to get behind this family and meet its needs.
While MNP has a lot of great professionals to work with, Small has also worked with others who are already part of the family’s team — lawyers, accountants, business planners, family therapists, wealth or insurance advisers. The family should expect that these people would work well together.
Transition SMART is a three-phase process:
- Start with the ground rules and begin by looking at the shared final objectives.
- Where are they starting this journey? What is this business today, how does it perform, what is it worth, is it viable?
- Once they know where they are today and where they would like to be in the future, then they can work on the third stage, developing the action steps. “Until there is a plan that can be implemented, there is nothing. A lot of plans fail at implementation,” says Small.
THE R-WORD
Retirement isn’t a popular idea for many entrepreneurs, and farmers fall into that category. The R-word is more about renegotiation. Renegotiating the terms of employment as the founder of the business.
Small says the negotiation process often begins like this: “I want to come to work every day but I may not want to be responsible for as much. I may not come to work as much, or work as hard and I may change my mind. I may break stuff. And you can’t fire me for any of those things!”
As well, retirement or renegotiation can mean the loss of the heroic mission that Mom and Dad have been on. “It is quite daunting to face that — it would be abnormal if it was easy to face so there needs to be a bit of work around it. Everybody plays a part in making this easier — the parents, the successors and the non-farming successors,” says Small.
“Succession isn’t really about retiring, it is just one part of succession planning. When retirement is imminent, consultants like me are brought into the room.”
WHO ELSE IS INCLUDED?
This can be quite an important question. Whether it’s neighbours who lease land to the farm, other farmers renting land from the farm, or longtime hired workers, the relationships built by one generation need to be cared for during a succession plan transition.
There may be key employees who have only ever reported to Dad and have a very good rapport and relationship. But they may have issues accepting the incoming successor if they are much younger or have a different way of doing things.
“Not considering these key people in the succession plan can threaten the business. You must pay attention to this relationship and manage it carefully. I have seen situations where, in the space of the year following succession, most of the employees had left the farm. This creates chaos and turmoil,” says Small.
COMMON DENOMINATORS
Small has worked with a variety of farm families over the years and says that while every situation is different, many common issues arise.
The most important tool for everyone in the succession/ transition process is communication. “One of the things that people like me do the most is facilitate communication. We apply a process but we are helping the family come up with their own vision and solutions. It has to be a collaborative process within the family if it is going to work,” says Small.
The most important best practice at the end of the day is communication.
IS THIS YOUR FAMILY?
While every family and situation is different, Small describes the situation that many farm families find themselves in.
Parents are in their 50s and kids are in their mid-late 20s. They have at some time done part of a plan such as incorporating the business or bringing the son into the business etc. They have scratched the itch — someone wasn’t happy so they have tried to address it. But it isn’t part of a plan that is leading anywhere specific.
Dad is getting quite concerned about taxes. Mom is worried about relationships. The married-in spouses are often feeling insecure; they may be living in a house that doesn’t belong to them and are wondering what happens to them and their kids if something happens to their spouse?
The successor is wondering when is this ever going to happen? “I want to know what is happening; I am 30 and I am not responsible for anything yet.”
If the parents’ wills were done when the children were small they are not likely to support any type of succession planning, so that is something that should receive immediate attention.
The strong patriarchs can be pretty challenging so sometimes bringing in a third party who has no emotional connection to the situation is a way to unlock some of the doors that have been locked and make a start.
