Thursday, May 4, 2017

Achieving Clarity with the Right Tool

If you believe Succession Planning is complicated, perhaps you do not have the right tool in your toolbox?  Working through the intricacies of your plan can be frustrating and complex.  The last thing you want to do is “quit”.     This tool, The Succession Map, might prevent you from doing just that.  Does this sound like a commercial?  You might be right but if it works and gets the job done … why not learn more about how it can apply to your situation.  

I learned about this effective tool from the course, Advising Family Businesses. Douglas Nelson, Senior Financial Planner, with Nelson Financial Advisory Service Corp, created this unique visual to navigate through the six-step process of creating a successful succession/transition plan.  I don’t believe this tool was meant to be a secret but judging by the few who know about its existence I wonder why it isn’t well known.

I like “clarity” every time I try to make a decision.  For me, “seeing a situation play out on paper” creates clarity.  Farmers understand that in order to get the grain, the wheat must be separated from the chaff.  When you are creating your succession plan, you need to sift through information to get to the heart of the matter (the wheat), the important issues. To do this, understanding your business begins with implementing the “Three-Circle Model”.

The Three-Circle Model refers to the three unique groups or systems which comprise your business:  the owners (or shareholders), the family, and the business. Identifying individuals with a vested interest in your business determines their respective roles and categories.  The stakeholders in a typical farming business may include Dad and Mom, farming and non-farming children, and hired farm employees.   Obviously, Dad and Mom will fall in all three categories while the non-farming child is only part of “The Family Group”.  
Once you know who’s who, the stakeholders, you will also have clarity in understanding who should be involved in making decisions in the respective groups.  Non-farming children would not partake in farm business decisions (The Business Group) but they certainly may be included in the discussions (The Family Group) clarifying the rules or standards for entering the business or owning shares. Dad and Mom (The Owner Group) may be the only owners but they are contemplating who else might be brought into the business as an owner and whether they are gifted shares or required to purchase them.

Each unique category in the Three-Circle Model has its list of values, objectives, and priorities. Once these are clearly defined, everyone will have a clearer understanding of the expectations of them and the business. Using a tool like The Succession Map allows open and honest conversations to take the emotions and stress out of awkward situations. The interesting paradigm about the circles is the fact that each group influences its counterpart.  Before they effectively operate in unison, you examine their components. What makes the family tick?  What are their family values? What are the family’s objectives?  Normally, it’s the family values which will coordinate and complement the business values.  

Farm businesses have been built on the hard work and sacrifices of their owners.  I know this from watching my parents.  Their farm was built as a result of hard work. They picked stones and roots by hand to have more cultivated acres.  They milked cows and raised pigs and chickens to create cash flow for their farm and modest lifestyle.  Their mixed farm operation pales in comparison to today’s large farm operations with their modern equipment and technology.  The bottom line is a farm business is a business regardless of its size.  Passing on the family farm business to the next generation is a tough transition because of its emotional connection.  Growing a business is like raising a child for the business owners.  True “sweat” equity in the farm comes about through hard work.  As an owner, you want to preserve the sweat equity which is why working through this succession plan is so critical.

The Succession Map’s step-by-step guide works through any conflicts, irons out details, develops ideal planning time lines, and outlines a specific action plan. When you have an easy roadmap to follow, you can’t get lost.  You might be stuck on some steps longer than you are on others.  The benefit of using this type of tool is that you can easily identify where you are stuck so you can get “unstuck”.

Now it’s your turn.  Can you see value in this tool? Can you see how this type of worksheet might benefit you?  Please share.  

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