Farm Family Business

Use a Succession Scorecard

Lance Woodbury
By  Lance Woodbury , DTN Farm Business Adviser
Budding entrepreneurs exhibit specific work ethics and skill sets, including a grasp of the financial implications of business decisions. (DTN/Progressive Farmer photo by Getty Images/iStockphoto)

Management and ownership transitions involve a vast number of business activities. Care must be taken with daily operations, people management, family relationships, finance and accounting and taxes, agronomy, animal health and nutrition, commodity or livestock marketing, government programs and vendor relationships. How do you measure the transition progress when there are so many variables?

Considering the complexities of and systems in a modern agriculture business, I've not found an easy answer to this question. But I have found three indicators that provide a scorecard, suggesting the up-and-coming owners will do well in their efforts to take over from their parents. Consider these three signs that your successor is on the right track.

SEEK RESPONSIBILITY

When I worked on a harvest crew in western Kansas as a young adult, the owner of the business told us that when we were done with our individual jobs, such as preparing a combine or truck for the day, we were to help other people with their jobs. Most people start out, as I did, working in a specific area. As they master their work, what happens? Do they jump in to help others? Do they begin teaching someone else? Do they look around and find some other task needing to be done? Or do they step back, do their own thing or head home? I often observe that those with a drive to take over the business are constantly looking for other jobs they can do or learn, or for other people to train so that they can move on to something else. They aren't satisfied with one responsibility; they look beyond their assigned role and strive to make more happen.

DEMONSTRATE CURIOSITY

Another telling sign of succession progress is an inquisitiveness on the part of the next generation. They wonder about, experiment with and at times argue strongly for a different approach to current tasks. In many cases, this curiosity is grounded in deep thought or research about a better or more efficient strategy. And, sometimes the senior generation's wisdom ("We've tried that before") should win out. But the next generation's desire for improvement provides a wonderful, real-world laboratory for testing analytical, decision-making and execution skills. How they articulate, persuade, implement and evaluate operational changes offers a tremendous amount of insight about their business acumen and their likely success in the driver's seat.

UNDERSTAND FINANCIAL IMPACT

Another critical element of succession is the next generation's grasp of the financial implications of business decisions. They may not yet fully understand the need for tax planning tools like deferred income, pre-payments and accelerated depreciation. But look for basic signs. Do they wonder how the purchase of a piece of equipment will impact cash flow? Do they understand the general timing of how money flows in and out of the business? Do they know what the major expense items are on the farm or ranch? The point here is not that they have all the answers, but that they are asking questions or demonstrating sensitivity in the first place. Are they "tuned in" to the idea that agriculture is a capital-intensive and often low-margin business?

Taking over the ownership and management of an on-going agriculture enterprise is a big step, and there's no single sign or recipe that will indicate success. Considered jointly, however, the notions of responsibility, curiosity and financial understanding provide a scorecard you can use to increase your comfort level in the succession planning process.

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Editor's note: Lance Woodbury writes family business columns for both DTN and our sister magazine, "The Progressive Farmer." He is a Garden City, Kansas, author, consultant and professional mediator with more than 20 years' experience specializing in agriculture and closely-held businesses. Email questions for this column to Lance@agprogress.com. Find all of DTN farm business columnists online at https://www.dtnpf.com/…

(MZT/CZ)