By Rick Thomason
University of Tennessee
Johnson County Extension Director
Nearly everyone will recognize the importance of a succession plan for successfully transferring a business to the next generation. Doing no planning or choosing to avoid the issues involved almost always leads to disastrous results. However, less than 40 percent of agricultural businesses have a succession plan.
What’s the hold up? Logic would suggest that developing a succession plan would be an obvious step toward transferring management and business ownership. However, complex forces are at work and, despite recognizing the importance of a plan, most farm owners and managers decide to do nothing about succession.
Some of the reasons they give for this include:
• Control: Few business owners find it easy to come to terms with the idea that the business could operate and survive without them. Thus, they are reluctant to give up control. Facing the reality that others may be able to run their business as well or better than they can is painful and threatening. The business defines them and surrendering power can be the one sacrifice they are not prepared to make.
• Fear: Fear of retirement can also be a powerful force. The thought of leaving their day-to-day involvement in the business and adapting to a whole new life style can be scary. Succession planning forces business owners to think about the end of their lives and come to terms with their own mortality. These thoughts can evoke feelings of fear or regret.
• Inability to Choose: The inability to choose among children often discourages succession planning. The dilemma focuses on differences between business values and family values. Should the selection be based on business competence versus the family values of loving and treating all family members equally?
Owning and operating a farm or ranch has some unique differences compared to most other occupations. The primary differences that most hinder succession planning in agricultural business include:
• Emotional Attachment to the Land: Most farmers are emotionally attached to the land they own and manage. In many cases, these lands have been a part of the family for more than one generation. Selling or dividing the land is often not considered due to these emotional attachments.
• No Plans to Retire: Many full-time farmers have a very difficult time hanging-up their hats when the time comes to retire. They often never expect to fully retire from farming. The reasons are many but often center around the 24/7 work ethic and personal drive that led them into farming in the first place. Most farmers have developed a lifelong attachment to farming and many find it hard to accept the slowdown that generally comes with retirement.
• Farming Lifestyle: Farming is a lifestyle and most people in agriculture feel it offers something non-farm life can’t match the opportunity to live, work, and play together; live in the country; teach children responsibility, a strong work ethic, and healthy goals and values. Most who have lived this lifestyle are not willing to give it up for any reason.
• No Retirement Income: No source of retirement income is another issue that often prevents agricultural managers from fully retiring. In many cases, farmers have invested in agricultural assets (land, machinery, livestock, buildings, etc.) throughout their careers and have had few resources to invest in retirement plans. In order to perpetuate the business, it is inadvisable to sell or otherwise liquidate productive assets.
Planning for the transition of management responsibilities to the next generation brings up a number of additional issues. These can be grouped into three broad categories: interpersonal issues, business issues, and succession planning issues.
Interpersonal Issues can arise from differences in perspective of the founder and next generation managers. Those perspectives vary across family and non-family members of the business, as well as across blood relations versus those who have married into the family.
Differences in perspective can be sources of conflict between founders and next generation managers, including: control over the performance and direction of the business, different ideas about gender roles, and generational priorities and values (relationships, sibling rivalry, etc.).
Founders tend to adopt one of three attitudes regarding the family business and managing transition to the next generation:
• Proprietors are focused on ownership of the business and see themselves as central to the business’ future. They can be very controlling of any involvement of children in the business, as they do not trust others’ abilities to make good decisions. As a result, their children often become passive or rebellious as a reaction to the over-authoritarian approach of the proprietors.
• Conductors like the idea of the family business and encourage children to become involved. However, they remain firmly in control of the business. They are not usually interested in developing a detailed succession plan, but try to foster a business culture and environment.
• Technicians create a business around their own technical skills and creative abilities. They generally dislike the management aspects of the business and often delegate those responsibilities to others. However, they view themselves as essential to the business, where no other person could possess the same skills as they do. As a result, they do not pass on their skills to others, nor do they easily let go of their role in the business.
Transferring ownership of a business the founders have put blood, sweat, and tears into may be very difficult. Seeing someone else own and control what they have started may initiate a strong sense of loss and start a grieving process. Many legal questions and personal preferences must be considered. The level of stress will be reduced by beginning preparations early and methodically. Adequate legal and financial advice by attorneys, accountants, lenders, etc. is a must. Founders must realize that someone else will own the business someday, even if it is after their eventual death, and it is best they make the decisions and preparations rather than a probate court.
*Source: John Hewlett, University of Wyoming Farm Management Specialist