Archive for the year 2012

The Parallel Tracks of Farm Succession

Posted on: November 27th, 2012 by Richard Cressman

Starting to build a Farm Succession plan can be an overwhelming topic at first. If the process is broken down into two components or parallel tracks it can be easier to get a grasp of what needs to be done. Track #1 is the operational side of the business (managing the business and ensuring the work is done appropriately). Track #2 is the ownership side of the business (who controls the equity and who is responsible for the liabilities.)

Understanding the distinction and differences of these parallel tracks can help demystify the process of building your Succession Plan. In the past when the younger generation started to farm the typical news up and down the concession was that they, “took over, or are taking over the farm from mom and dad”. Today’s farm operations are much too complex to just “take over”.

The Succession Plan, when put together properly, is a roadmap that provides a path to follow for the transitioning of one generation into farming and the senior generation out of farming. It is crucial to view the plan for what it is: It is NOT the process – it gives you the step by step instructions in how to go about the process in the future.

Timelines are the cornerstones of a great Succession Plan: using the above model of parallel tracks, the responsibilities for the operational side of the business can be transferred to the beginning generation over a period of three to five years. For example, the goal may be that the beginning generation works for the first year under the direction of the senior generation without decision making responsibilities. Over the next four years, the Succession Plan could call for an increasing level of responsibilities be assumed by the younger generation each year with the ultimate goal that full responsibility is on their shoulders for the day-to-day operation of the farm (this is just an example of time lines)

Capital purchases etc. would still need to be discussed with the senior generation. This graduated approach allows both generations to adjust gradually versus trying to deal with abrupt changes. It also allows the senior generation to establish their confidence in the beginning generation that the business will be managed with competence. However, it is in this transition phase of management that disagreements and frustration can set in. For the generation entering the business, it feels the process is going too slow. For the senior generation, the process seems to be going too fast. This is where planning and talking is so important! If you are the younger generation and you think Dad is not giving you the responsibilities you expected, refer back to your plan. What did you agree to? Are you on track?

The ownership transfer can start off at a much slower pace and continue to build over time. For some families, the beginning generation may work for a salary for the first one to two years. Depending upon the age of the parents, and what level of income they may have from off-farm sources will depend upon how fast they want to transfer their equity in the business. In some cases the beginning generation will need to out-right purchase the farm, and in other cases there will be a combination of purchase/gifting. Either way it is critical to create a plan that shows the younger generation that they are able to build equity at a pace that equals their input and contribution to the business. Working for a promise doesn’t cut it. Carrots are to be eaten – not for dangling in front of some ones nose. It is not fair and it makes the younger generation feel that they are under their parents thumb.

 

The key points to keep in mind:

  • Management of the business should not be confused with ownership of the business. They are parallel tracks in a Succession Plan. Viewing management and ownership as separate but intertwined entities when designing this Succession Plan will make it easier to address all of the issues.
  • In the past it was a fairly common assumption to believe that each generation was going to end their farming career with a debt-free farm. That is changing. It is becoming more common for parents to plan their retirements using cash flow from their equity versus living off of the equity. Key distinction.
  • As the beginning generation enters their farming career the parents may still be in an expansion mode of their own. Hearing of a 70-plus-year-old farmer thinking of buying another farm in the past turned heads – usually in disbelief, but not anymore. Thankfully age and gender perceptions of who should be farming are rapidly being destroyed.
  • The Succession Plan is a roadmap. It is complete with dates and descriptions of how the succession process is to unfold.

Farm Succession 1-2-3

Posted on: September 18th, 2012 by Richard Cressman

In the past 15 years the term Farm Succession has been tossed around in many farm circles. Government programs have been spawned to address this topic. Consultants have written articles and held seminars on the topic.

Farm families have been confused and many have tried to ignore the topic of transition. Some farm families have moved forward and addressed the legal, financial, and emotional issues in a positive way. On these farms the transition from one generation to the next has been virtually seamless. It just seemed a natural extension of the day-to-day operations of the farming business. On other farms it becomes a tug-of-war between the generations with much emotional and mental energy expended.

To get a handle on this complex topic distilling the Farm Succession process into three basic questions can be helpful.

  • “Is the farm business profitable and can the cash flow support the additional income for those who want to join the business?”
  • “Is the dream of the younger generation powerful enough to get them out of bed each and every workday for the next 20-25 years?”
  • “Can a financial deal be put together that will allow mother and father to sleep peacefully each and every night for the rest of their lives?”

 

Regardless of how difficult or complex the transition process is, it always seems to come back to these three questions.

The answer to the first question is obvious. You must start with a financially viable business or be able to expand it in a profitable manner to support all the individuals who are going to be a part of it.

The second question addresses the passion that the younger generation has – do they have what it takes (passion, desire, ability, and know-how) and be willing to get out of bed each morning and make it happen? Running a business takes more than just a dream. It takes the dedication to block out the distractions and forge forward.

The third question is the most challenging to address. Far too many times when the cash flow is tight, mother and father will under estimate or lower their retirement dreams and expectations to allow the younger generation to carry on the business. The other part of this question is whether the parents are totally confident in the ability of the children to make the business a success. It is not uncommon when parents are confronted with the question, “do you have any doubts whatsoever that your children can make this go” to hesitate before answering. It is this doubt that can cause parents to lie awake at night hoping and praying they have made the right decision in passing on the farm versus selling and having a very comfortable financial retirement for themselves — and providing a substantial inheritance for the children.

Yes, it is simplistic to distill the transition of a farm business into just three questions, but these questions do drive home the key points many families tend to skirt around when addressing this massive topic.

From my experience sitting at kitchen tables I do believe the most important question is the third one, “can a financial deal be put together that will allow mother and father to sleep peacefully each and every night for the rest of their lives?”

Dad won’t let go

Posted on: July 7th, 2012 by Richard Cressman

My question for Richard

I have been working with my parents full time for 12 years. I have been married for three years and my wife works off the farm full-time.

The farm business is financially successful and we have gone through a significant expansion in the past three years. Over the past five to six years I have taken on full responsibility for making sure all the work gets completed, but my father will not let go of the control and because he has to be involved in all of the decisions.

He is almost 65 years old and in declining health but when it comes to talking about my future in the business he just refuses to talk. I love farming but I am not sure how much longer I can tolerate not knowing what the future is.

 

Richard’s Reply

For what it’s worth, you are not alone. Letting go of control can sometimes be the most difficult thing particularly for fathers to do. You mentioned that your father is almost 65 years old.

This indicates that he is probably been farming for close to 45 years and there is an excellent chance that he was making serious management decisions at a very young age. If your father and possibly mother will not sit down to discuss the future, you ultimately will have to make a decision.

Do you confront them with an ultimatum (and this is a very extreme undertaking) that things need to be addressed and that you cannot continue on the way things are going. If you do elect to take this route, there can be serious ramifications.

Father might take it as if you are challenging his authority and digging his heels even further. On the other hand it is possible that he is waiting for you to really challenge him. While this sounds ridiculous, it is a real possibility.

Another option that may work for you is to sit down with father and asked him about what it was like when he was getting ready to start farming and how he and your grandfather worked out the transition. What you are trying to do here is turn the tables and find out from father how things transpired when he was in your possession.

You may find that he went through a struggle to get control and has a belief system that supports a young person needing to stand up to the older generation and give that ultimatum so that he will have proof that you have what it takes to make the financial and management decisions.

Mother-in-law talks behind my back

Posted on: May 23rd, 2012 by Richard Cressman

My question for Richard

My husband and I started to farm with his parents seven years ago when we first got married. We are in the process of working through the final details of buying their share of the business.

There has been a considerable amount of strain between my mother-in-law. I get along great with my father-in-law and my husband gets along very well with his father but does have a considerable amount of differences with his mother. His mother seems to continually talk about us behind our backs and I find it very frustrating and at times embarrassing to be asked questions or your comments from friends of mine who have picked up this gossip in the community.

How do I go about approaching her because every time we do talk she does get very angry and we end up fighting?

 

Richard’s Reply

It appears that you have a chronic communication problem that just does not want to go away. It can be embarrassing as you mentioned to hear from a friend or neighbor about what is going on in your family and it probably does not reflect the situation the way you see it.

Frequently, individuals who have a struggle in dealing with their own emotions and in particular taking responsibility for their emotions and feelings, will tend to throw blame on to other individuals.

To justify their thinking they will frequently tell those around them what their interpretation of the events are which in their mind becomes the reality of the situation. Here is the nuts and bolts of your situation. Your mother-in-law’s going to be a part of your life for as long as she lives.

It sounds like your husband enjoys farming with his father and it sounds like his father enjoys farming with his son. You are caught between a rock and a rock. If you start discussions with your mother-in-law things will probably erupt for whatever reason. Undoubtedly this will cause more stress on your husband and your father-in-law.

You have a couple of options. You can try and sit down and talk with her which as you have mentioned has not worked in the past. The second option is to try and design your life to have as little interaction with her as possible. This gets complicated if his grandchildren involved. It also gets complicated if the family gets together socially on a frequent basis. The third option is to somehow come to grips with the ‘fact’ that your mother-in-law is probably lived the majority of her life being critical of others and changing for her will be a monumental struggle. The only option left that is for you to come to grips with the fact that this is a situation that you have found yourself in and only you can change how you are going to respond to it.

Here is a suggestion. Who are your mother-in-law’s friends? do you admire any of these individuals? If by chance you know some of her friends well enough to sit down and talk with them it may be advisable to ask them what suggestions they would have for you to live as peacefully as possible with your mother-in-law in your life. It may be an eye-opener as to what suggestions you may get. At the end of the day it will probably come down to you deciding what attitude you will bring to the table in how you deal with your mother-in-law.

I don’t work hard enough in their opinion

Posted on: February 1st, 2012 by Richard Cressman

My question for Richard

My husband and I have been married for two years. He farms with his father and his brother who got married a year after we did. My sister-in-law comes from a farm background and loves farming. She could be in the barn or in the tractors all day long if given the opportunity. She has taken a job off the farm on a part-time basis. I had worked off the farm prior to getting married but have decided to stay at home and help as much as possible around the farm.

The problem is that both my mother-in-law and father-in-law do not seem to think I do enough. It does not seem to matter how many hours I put in or how hard my husband works, we always seem to feel that they are looking down on us compared to the other son and his wife. It’s particularly starting to cause friction between me and my father-in-law.

 

Richard’s Reply

You are experiencing what can commonly be called the “daughter-in-law syndrome” you are moving into a family environment where no doubt the culture of the family is somewhat different than yours.

You are being compared to your sister-in-law even though your mother and father-in-law would probably not admit that they are doing that. You are also probably competing with a mother-in-law who was very active in doing farm work and possibly still is.

Some families can be very critical of the newcomers and how hard they perceive them to be as far as workers go. It’s unfortunate, but in many cases respect is proportioned out to newcomers in relationship to how hard they can work.

Coming from a non-farm background and putting in a 10 hour day may seem like a full day’s work, but on a farm a 10 hour day may seem quite short. Your mother-in-law probably cooks and keeps the house tidy and still works probably five or six hours in the barn six days a week. This is a pretty hard act to follow and if you try to win their respect strictly on hard work it may take a long time. If you start to work on trying to understand where they are coming from with their expectations rather than feel critized you may get some inkling about how to deal with the situation.