In his latest column, DTN's Farm Business Adviser Lance Woodbury addressed four obstacles that typically hinder transitions from one generation to the next in a family business (subscribers can find "Letting Go of the Family Business" on the Farm Business page). It's a emotional topic, since successful operators often have trouble unwinding from their life's work, but the next generation may chafe at lack of independence. Add to that the financial risks at stake with today's commodity markets, and there can be legitimate concerns about a successor's readiness to fly solo. Since Woodbury has counseled dozens of family business owners on how to make a successful hand off, we wanted to continue the conversation here. Feel free to comment or pose more questions for Lance.
Taylor, DTN: Lance, your column on exiting the family business described some of the most common obstacles to a successful exit. Airing those fears is step one. What are some suggestions on how to start the conversation?
Woodbury, AgProgress: Marcia, I find that a discussion about exiting is best framed alongside a conversation about the future of the business. In other words, it’s not only about an exit, it’s about the future of the farm, and everyone’s roles in that future. Talking only about one’s exit misses the opportunity to think more broadly about how the business will compete in the future, what skills are needed and what perspectives might be valued. So, step one is to get the family around the table to talk about the future, and then move to a discussion about how each person will contribute.
When talking specifically about roles, I find it helpful to ask the senior generation to consider the next three to five years in terms of “percentages of time fully employed.” If Dad is working 100% today, what does he want that percentage to be each year for the next five years? It is a 20% reduction per year, or 50% this year? Once you have a marker, you can begin to backfill to list the responsibilities or tasks that will comprise that percentage.
Taylor, DTN: Lance, does an exit from the business have to coincide with selling or gifting ownership in the business?
Woodbury, AgProgress: Marcia, that’s a great question. You’ve often heard me talk about the hats people wear in the business (in fact, I recently wrote an article on DTN and in Progressive Farmer on that very topic). Sometimes you have on a “manager” hat, thinking about daily operations or management decisions. Other times you have on an “owner” hat, where, as a shareholder, you are thinking about investments of capital and return on those investments.
When it comes to an exit, it helps to coordinate management and ownership transitions. It is sometimes difficult to lessen the senior generation’s management activities when their capital is being managed by someone else – even family members. So, you might coordinate a five or 10-year sale of the operating company with a gradual reduction of management responsibilities, such that the senior generation is fully bought out of operating assets at the same time they are fully retired.
Taylor, DTN: Lance, I hear about lots of conflicts between the junior and senior generations during a transition. How can that conflict be better managed?
Woodbury, AgProgress: Marcia, there really is no substitute for simply talking through people’s expectations on an ongoing basis. Especially during a transition, when the younger generation might be suggesting changes, and the senior generation is not sure of their future activities, all while trying to make a handoff, extremely high levels of tension and stress are common. The way through that time period is to talk about it. The more frequent the communication, the less time there is for feelings to fester and generate a major eruption. Look to your trusted advisors to help guide and facilitate the discussion.
Also, having someone on the outside of the situation to “vent” to can help family members cope with the transition. Someone who will keep conversations confidential, who can offer feedback or suggestions, or just simply listen to the frustrations, can be really valuable to those in the business experiencing the change brought on by exits.
Follow Marcia Taylor on Twitter@MarciaZTaylor
© Copyright 2015 DTN/The Progressive Farmer. All rights reserved.