My top five considerations provide a snapshot of specific things to kick-start your succession plan. Before we examine these considerations, let’s acknowledge that the word “succession” is being replaced with “transition”. You might agree “transition” is a more user-friendly word.
“Succession” gives the impression that the present owner is being replaced (or displaced). This thought doesn’t sound appealing or motivating to someone if this means being “put out to pasture”. When “transition” is used instead, the immediate image represents a “change”. Although change can be frightening in some regard, it can also be exciting. New experiences may emerge while specific stresses can be passed on to other family members through the transition process. Sharing knowledge and wisdom with the younger generations can be rewarding. Celebrating successes as a mentor can be motivating.
Some common threads prevent many farm family businesses from developing their transition plans. The reason may simply be that other important tasks take priority. However, what could be more important than protecting you, your family, and farm business? Here are five considerations worth pondering to kick-start your transition plan.
1. Identify Your Mountains.
Your mountains are the challenges you run into when you attempt to conquer a task. Undertaking “transition planning” is a journey. You are likely to encounter a few mountains even before you start this journey. What mountains are on your list?
· Is it fear? Are you afraid of approaching the subject with family members? Do you anticipate confrontation which you would rather avoid?
· Are you concerned that you may not have a successor?
· Does the entire transition process seem too complicated?
· Are you unsure how to begin?
· Do you believe you have plenty of time to deal with transition planning?
Once your challenges are identified, determine three possible solutions or strategies to tackle them.
2. Appreciate “Time”.
Time is money.
Forbes Magazine shared Ed Slott’s quote:
“Time is the greatest money making asset any individual can possess.”
This is true. You have time to create your wealth as well as to protect your wealth for your family and yourself.
Time is also your friend. Time allows you to prepare for a crisis situation as well as explore various transition options:
§ Have family members eventually take over your roles.
§ Work with a partner with the option of a potential merger.
§ Sell your business to an outside buyer (third party).
§ Hold a liquidation sale of your equipment, buildings, and real estate.
Time provides ample opportunity to groom a successor or convince a successor that they should buy your business rather than start one.
Time allows your successor to develop their skills, learn the ropes so to speak, and arrange the financing required to buy your interest.
If your first choice for a successor doesn’t work, you have time to look for others.
Time also permits you to “work” on the finances of your business, analyze your business, and if necessary, make improvements to showcase its value.
Financial statements are important documents to confirm the current and past performance of your business. Your Income and Cash Flow Statements reveal your business’ earning power as well as its potential value. Your Balance Sheet and Net Worth Statement are beneficial in determining the tax liability and current market value of your assets.
“Opening the books” to a third party or even your family shows whether you are being rewarded for your blood, sweat, and work.
If you are looking to increase productivity, another helpful process is a SWOT Analysis Typical questions are: This identifies your business’ strengths, weaknesses, opportunities, and threats. Then you can determine appropriate strategies to implement.
(S) What do we do exceptionally well?
(W) What could we do better?
(O) What opportunities do we know about, but have not addressed?
(T) Are weaknesses likely to make us critically vulnerable?
Writing a Business Plan for a farm operation can be a useful lifeline to understanding why you do what you do in your business. Key sections highlight your potential market, customers, products, and services, as well as mission and vision statements. Probing what your business currently looks like and what you want your business to look like in the future can be helpful in making decisions. Your Business Plan passes on powerful insight to potential successors.
Build Bridges and Close
You don’t know what you don’t know so you may need to lean on your advisors for help with your transition plan. Simply put, “No man is an island entire of itself” which emphasizes the need to build bridges with experts to implement a successful transition. Your experts range from, but are not limited to, accountants, lawyers, lenders, investment advisors, insurance representatives, business coaches, and financial planners. Collaborate with these experts. “Collaboration” is a great word since this means to work jointly on an activity especially to produce or create something. Your creation is a thorough transition plan.
Building bridges also occurs with family members. If you and your family are miles apart in your discussion on transitioning the business, consider closing the gap. There’s no better time than now while you have time on your side. At the very least, start slowly with conversations which feel safe.
Scheduling regular business meetings effectively keeps everyone informed about business affairs and actively seeks their input. Decisions which ensure the business survives and thrives are important to its success, creating a legacy for future generations. Others should be knowledgeable and informed about the business’ practices to ensure the business survives an unexpected tragedy. The principal business owner may suddenly become ill or injured. The worst possible situation may be an unexpected death.
Using everyone’s skills and talents also closes the inefficiency gap. Ernesto Sirolli, author of the book Ripples from the Zambezi, shared three areas in business, referred to as the “Management Trinity”. They are producing the goods or services for sale (which is the labour component), marketing the product, and managing the finances. One person is generally skilled in two of the three areas. Knowing your strengths and those of your family members will determine who is best equipped to oversee the management areas. Sharing the responsibility with others who have strength in areas binds forces to create a win-win situation for the business.
Conversations which are respectful and honest are important for family who work side-by-side to build a successful business. Without good communication skills, family members are likely to jump to conclusions, do things their own way without any consultation, and make rash decisions. In the end, the family business will suffer as a result. Closing the communication gap will create family harmony rather than conflict. Developing a Code of Conduct and a standardized operating procedure for addressing conflict will help in building family unity.
Focus on the end
“Begin with the end in mind,” advises Stephen Covey, in his book, The 7 Habits of Highly Effective People. Ignoring transition planning is like carrying the weight of the world on your shoulders. On the other hand, when you begin the process, you will feel a sense of renewed energy as you take charge. When you schedule regular business meetings or appointments with your advisors, you will achieve small victories on your journey. These baby steps eventually see you to the end. Since this journey may take between three to ten years, any progress towards the ultimate goal is better than no progress. When you persevere through your challenges and use your time wisely, you will arrive safely at your destination with a transition plan in place.
I said it before in a previous blog, Don’t Wait, Just Start, and I will say it again, “You have to ‘Eat That Frog’ Transition planning is something you can’t put on a list but the incremental tasks can be broken down into a list. The longer you procrastinate the more overwhelmed you will be with the entire process. Start small but start nonetheless. You will be glad you did. The items on your to-do list need to be identified.