Strategic Business Planning for Commercial Producers Succession Planning: How do I Train the Next General Manager?

Strategic Business Planning for Commercial Producers

Succession Planning: How do I Train the Next General Manager?


What is succession planning?…it is a PROCESS that ensures the

continuation of a business through the generations.

“The final test of greatness in a CEO is how well he chooses a successor and whether he can step aside and let his successor run the company.”

Peter Drucker, management expert


• 90% of U.S. businesses are categorized as family owned.

• 7 of America’s 8 oldest family businesses are farms.

• While 78% intend to pass the business on to children, only 34% create a succession plan (for 25% a will is the only element of that plan).

• 70% of first generation businesses fail to survive into the second generation.

• 15% survive into third generation.• 1% survive into the fourth generation.

Source: Small Business Administration

Did you know. . .



Steps in Succession Planning Process

1. Understand what succession is2. Discover expectations3. Examine options4. Create a plan5. Check with experts6. Finalize the plan7. Implement the plan


Step 1. What Succession Is and Is NotSuccession is:• A process• About family, people

and relationships• About ownership,

management and estate

• About what is fair• Driven by the family

values, wants and concerns

Succession is not:• An event• One person’s problem

• About minimizing taxes

• About equity• Driven by technical

issues that are handled by lawyers, accountants, etc.


Step 2: Discovering Expectations

• Should involve all family member (whether in the business or not)

• Assumptions at any stage about other’s wants or expectations should not be made

• Say no to secrecy!


Perry RosePerry Jr.Kay

Say NO to Secrecy!


Step 3: Examine Options

Key Questions:– What role, if any, will family members play in the

succession plan?– What can we do to treat all offspring fairly?– How can I prepare for either a different role in the

business or for retirement?– How will the transfer of ownership be handled?– How will the successor(s) be trained?– How will the change in roles be communicated to

stakeholders?


Bob

Joe

FriendPart-time farmerKey employee

Carl

Farm Owner

Jan

Physician

Family First versus Business First


Robert

Fair versus Equal


Step 4: Create a Succession Plan• Plan for transferring

management• Plan for transferring property• Contingency plan for managing

disruptive events


Choosing the Successor • What specific attributes would

you look for in a successor?– Education– Experience– Personal characteristics– Skills required– Job responsibilities


Grooming the Successor• How do you provide opportunities to

make decisions, take risks, and develop management skills?– Initial evaluation– Management training– Career growth – Regular feedback– Timetable (allow 5 years to 15 years)


Charles for Charles

1 2 3 4 5 6 7 8 9 10

1 Crop Management

Negotiation skills

4

Livestock management

Marketing

Purchasing

17 Leadership skills

16

15 Communication skills

14 Ability to act and accept risk

13 Decision making

12 Analytical ability

11 Emotional endurance

10 Physical endurance

9 Securing resources

8 Financial management

7 Personnel management

6 Building construction skills

5 Mechanical ability

3

2

Low HighAverage

Dad for Charles

Evaluation of Farm Management Skills


Step 5: Check with Experts

• Use them to comment on your thinking, not to do your thinking for you

• Should be visited only after you’ve thought about the process


Step 6: Finalize the Plan

Write it down!


Step 7: Implement Plan

• How to announce the plan?• Develop program with action plans• Set target dates• Schedule follow up/review of program• Keep everyone informed • Review the plan periodically


Typical Parent-Child Business Arrangements On Family Farms

• Spin-off model• Landlord-tenant model• The “super-firm” model


Critical Issues:

• Transfer of management• Transfer of assets• Anticipating disruptive events

Succession Planning



Key Questions About Involvement In the Family Business

• Who are the participants?• What role(s) will each family member

play in the business?• Employee concerns include income

and benefits, financial security, recognition• Manager concerns include responsibility

and authority, career growth, recognition• Owner financial growth, risk versus

reward, rate of return, cash


Think About Separating The Roles• No single participant need wear all three

hats as manager, employee, and owner• One advantage of business entities

(super-firms) is they allow us to separate ownership and management

• Provides opportunity to keep non-farm heirs involved as investors


Fundamental Tasks When Planning to Accommodate Off-Farm Heirs

• Assure a degree of marketability to investments of off-farm heirs, minority interest holders

• Provide assurances about current or future returns on their investments

• Provide for legitimate forms of involvement in family/farm governance


Multiple Entities

(Advantage: Flexibility in Numbers)

• May be easier to deal equitably with on-farm and off-farm heirs

• Using a new operating entity reduces the investment needed by on-farm heirs to gain control of the operating entity


Family Governance Structures:

Family Council

• Includes all adult parties in interest to business or family assets

• Deals with questions of the family’s role in the business and the welfare of family members

• Purpose is to give all stakeholders a legitimate voice in the family business



Documents

Strategic Business Planning for Commercial Producers Succession Planning: How do I Train the Next General Manager?