Minding Ag's Business

Lean Profits Threaten Succession Plans

In our monthly banter on family business issues, small business consultant and mediator Lance Woodbury and I discuss his latest DTN column. "Storm Clouds Hit Succession Plans" describes how financial stress is disrupting the best laid succession plans and what to do about it.

Woodbury co-founded the Garden City, Kansas firm of Ag Progress and is a veteran consultant with more than 20 years experience advising small business owners and family farm operations.

Taylor, DTN: Lance, your column on how multi-generational families might approach financial stress offers several practical tips. Can you offer some more details about how you are seeing families tackle the challenges?

Woodbury, Ag Progress: Marcia, families that are on top of their financial situation generally, are on top of their numbers specifically. They are deep into spreadsheets and financial software, running projections, reviewing budgets, discussing options and planning for different scenarios that include several different commodity price assumptions. They are talking about what might be negotiable. They are asking lots of questions about the rented land that is most unprofitable. That are talking about shedding underutilized assets. They are developing contingency, or “what if,” plans. In short, they are spending a lot of time working “on,” while also working “in” the business. And they are effectively developing a shared understanding of how best to make it through tight times.

In larger farming organizations, owners have developed a way to provide checks and balances around how money is spent, such as developing purchase order systems. They are also finding ways to help employees understand how to connect the dots between the daily farming or ranching activities and the impact on the financial well-being of the business. For example, explaining the cost of outsourcing repairs versus doing it yourself, or the financial impact of unnecessarily moving equipment.

Taylor, DTN: It seems that many families became comfortable with higher family living expenses. Is that causing problems?

Woodbury, Ag Progress: I’m certainly seeing families agree to freeze or lower their compensation. As I mentioned in the column, sharing the numbers helps everyone develop a common understanding of the sacrifice needed and how little savings or reductions can add up to meaningful savings for the business. I’ve also seen family members offer to help out more to save the business some labor expense, or offer to explore off-farm jobs to take some of the pressure off the business. And yes, there are families that are struggling to tighten the belt. Getting rid of some of the toys or unnecessary items will become a regular part of the discussion.

I’m also seeing family members get creative on trading asset utilization for services that have been out-of-pocket expenses. For example, if someone in the community can use your equipment for a job they need done, maybe they can provide labor in exchange. Or if you can help a vendor solve a problem in their business, they can cut you a better deal than what you currently have with them.

Taylor, DTN: What’s the biggest obstacle in tackling this issue?

Woodbury, Ag Progress: You probably won’t be surprised to hear me say “communication.” While managing in tough times is often about the money, the reality is that they have to communicate in order to solve a problem. When people get frustrated they often blow up or shut down – neither of which helps solve the issues. So I tell people to stay disciplined about a regular process of communication. When people go silent or avoid the conversation, it spells trouble for the organization.

To read Woodbury's column, "Storm Clouds Hit Succession Plans," go to https://goo.gl/…

Follow Marcia Taylor on Twitter @MarciaZTaylor

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