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Succession Planning: Who's Next?

Posted Sep. 1, 2001

The average age of farmers and ranchers is 60 years. Farm families spend their whole life managing their farm businesses but often fail to plan for retirement and the succession of the business because of production agriculture's time constraints.

Asset owners should not retire until they plan their business's succession. One of the major problems encountered during such planning is conflict. Few people like it and most try to avoid it. Identifying a process to resolve conflict is an important first step in succession planning and should include

  1. recognition of the conflict;
  2. analysis of the conflict (its source and the consequences of not resolving it);
  3. options for resolving the problem(s);
  4. an alternative that all parties can live with (i.e., a consensus).

If the problem can't be resolved, a professional mediator could be hired to help. The discussion should concentrate on people's interests, not positions. Conflict can be reduced if people communicate. The people most affected, including spouses, should be involved in all discussions. For a succession plan to be successful, building and maintaining relationships is essential. Everyone involved in creating a succession plan should list expected outcomes.

Farmers and ranchers have many retirement options, such as

  1. selling the farm or ranch assets;
  2. leasing assets to other producers;
  3. hiring a professional farm-property manager;
  4. involving family members in managing the farm and transferring the assets to them later.

The first three options are passive, while the fourth involves management and control. Involving family members in the ownership and operation of the farm or ranch can be rewarding. It can also create problems that could generate a fair amount of conflict. Transferring the farm assets requires that the farm asset owners, typically mom and dad, begin planning early. For example, the owners need to determine how many families the farm's assets can support.

The family members must think of themselves as a team. Each person must have a defined role and be committed to a common goal that he or she helped develop. The family members' roles should be characterized through job descriptions that identify each member's level of authority within the family farm business; an organizational structure chart can clearly display the management hierarchy.

Operating policies and procedures should be developed so each family member can be treated equitably. Communication should begin immediately, and methods for its continuation need to be established. Performance goals should be prepared for all family members in the farm business, and compensation should be made according to the scope of the job or contribution. This approach prepares family members and employees to receive performance incentives upon reaching agreed-upon goals. Most decisions can be categorized into at least two of these areas: unilateral (one person decides), vote (two-thirds majority), and consensus (individuals can live with the decision). Family members must know which decisions fall into each category. An agreed-upon organizational structure helps clarify who makes certain decisions.

Once succession and retirement plans are in place, the process continues to evolve. Circumstances may change (e.g., health and goals), requiring adjustments to the original plan, but continued communication can reduce conflict and allow efficient transfer of assets and management.

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