Getting the succession plan conversation rolling

Stuck, that’s how most of our clients say describe starting a succession planning conversation with the rest of the family. Succession planning is an emotional topic with each generation coming at it from very different perspectives that make it difficult to get the process of succession planning started.

Caught up in this is the impatience of the younger generation to take over the farm, and the older generation letting go. But it doesn’t have to be difficult, in this article we talk about how you can get the conversation rolling.

Understanding the roadblocks

Overcoming the discomfort in talking about succession planning starts with understanding what roadblocks are attached to it. After helping many farming families work through the issues associated with succession planning, we’ve come up with an approach that’s inclusive of all family members.

The first is to get the family talking so we can understand where everyone is coming from. This is especially important for the older generation who can be anxious about letting go of the farm, or what happens when a new family member arrives on the scene. Out of these conversations, we nearly always get asked the following:

  1. How do we protect assets when a new family member joins the business?
  2. Who does what in the current and future structure?

Other questions and issues are raised, but overwhelmingly it’s these two questions that are asked time and time again.

Protecting assets when a new family member joins the operation

When a family member gets married, they may want to get their spouse involved in the farm’s operations. This is often the hardest issue to tackle especially for the older generation who approach the topic with the best intentions but may have preconceived ideas about what will happen when a new spouse joins the family. These ideas can often be very different between the two parties.

Any new conversation should start with an understanding that everyone is allowed to express a view and that they’ll be listened to. This is especially important for the younger generation so that the older generation can talk about any anxiety they may feel in an open way. Sometimes the best way to do this is through an independent facilitator, like SproutAg.

Current and future roles 

The next big question is who does what in the current structure and in the future one. It is important that both the younger and older generation thinks in detail about what these roles are and what they are responsible for.

It is important for the roles to be defined with both generations input because it draws on valuable knowledge about what the farm needs now and, in the future, and how each role meets those needs. Defining roles is also a critical part of a successful transition as without it the older generation can feel left out of the operation, or the younger generation is unclear about what they need to do.

From our experience, the success or failure of a succession plan comes down to defining and documenting roles, even for those who want to exit the operation entirely. For the older generation, the deciding factor is often keeping them involved in the farm and making them feel part of its operation.

Family farms remain a strong business model

Despite the talk and headlines related to Australian farmland and foreign corporate ownership, the family farm remains the dominant business structure in Australian agriculture. There is a good reason for that; families run their farm operation very different to a corporation.

One of the great advantages of a family business is its ability to come together, cut expenses and make hard decisions when times are tough. Add to this, a family can act more nimbly than a corporation that often relies on management decisions made by its executives who are away from the day-to-day operation and conditions. An executive also needs to balance capital expenditure across its entire business, causing bottlenecks for investment decisions. This is despite the deeper financial pockets a corporation can draw on when compared to a family operation.

Compared to a corporate farm, a family business has the quick footedness to innovate and implement the innovation into their operation. A corporation can be hamstrung by bureaucracy as decisions need to go through management before implementation, meaning an opportunity is lost.

While on investment decisions, a corporation is more likely to sell out over a family-run operation because they are looking at the return on their investment and shareholder pressures. In these scenarios, if a farm does not achieve a return at a certain level, they may instead sell and buy property elsewhere that will. A family farm is more likely to see out the peaks and troughs of agriculture because they have a personal connection with the farm.

This personal connection and “in it for the long haul” mentality means a family is more likely to stay on the farm than a corporation. A corporation will have a set way of doing things, which works when things are going well, but this may fall apart during lean times.

However, there are some things a family operation can learn from a corporation. Corporations are generally more disciplined, document plans, research investment opportunities, set up regular structured meetings. They also clearly define business plans, management structures, processes and have clear vision and mission statements that guide their business.

This is a general summary to give you information about the benefits of family farm ownership. We can sit down with you to better understand your farm business and offer advice to achieve your goals.  Get in touch with your local SproutAg representative today to find out more.

Guiding the Generations: Essential Tips for Leading a Family Business

Guiding the Generations: Essential Tips for Leading a Family Business

Owning and managing a family business can be complicated because you have the added difficulty of managing family members with the day-to-day operations. However, it’s equally a rewarding opportunity as the family work together to build the business you want rather than another’s ambitions.

There can be extra pitfalls along the way if you’re the one leading the operation. SproutAg has worked with many farming families, and we’ve found a successful leadership style that comes out of these five areas.

  1. Have a plan

As a family, agree on a plan that outlines the overall strategy of the farm. Suppose you want to grow the farm over time, outline how it will be achieved. Typically, this plan will also include ownership of the farm and how you will transition between generations.

The plan must be realistic with these goals, which is why we recommend our clients draw up three-year plans with rolling cash flow forecasts. A three-year plan is also a helpful steppingstone to your longer-term goals and communicating them to the family, mainly if there are cashflow constraints on your growth plans.

It is important the plan is communicated to and understood to the whole family.

  1. Create a structure

It’s important to create a sound business structure for the family farm. This structure should include the formalities like business structure (company, family trust etc.) and employment contracts that clearly outline roles and responsibilities.

There should also be a clear understanding of what happens if family members fail in their assigned responsibilities. A communication plan helps pull these factors together and articulates the overall farm strategy so everyone is informed.

  1. Communication

Communication is a critical component of success and is an area we often talk about with our clients. Intergenerational communication can be incredibly complicated because each generation has a different communication style. As a leader, you should be open and encourage family members to speak up when they have an issue. You should also be clear in your communication style, so people do not misinterpret what you say.

  1. Manage Conflict

Following communication, conflict management is often an issue we see time and again on family farms. It is crucial everyone understands how they manage conflict and that you address problems early on. As a leader, it is your job to bring people to the table and get them talking through their issues.

  1. Be decisive

Being decisive is an important part of leading a family business. This includes making a call on who should or shouldn’t be involved in operational meetings. For example, when older family members ask a young non-working member at university to be part of weekly operation meetings. The result is tension because they’re given equal say to those who work on the farm each day.

You can work around these issues by creating sub-groups within the family who are responsible for making specific decisions about the business.

This is a summary to give you general information on leading a family farming business. We can help you create a structures and plan and to help you implement leadership into the farm business. Get in touch with your local SproutAg representative.

The risks and rewards of working on the family farm

Working on the family farm can be very rewarding. Irrespective if you were born into it, married into or work for a family farming operation, you can benefit from all your hard work going back to farm without the formality that comes with corporate employment. However, with the rewards come challenges when something doesn’t go right that causes tension with the family or even see you lose your job.

A lot of reward but there can be downside

Family farms have all the benefits of a job for life, with your hard work benefiting the family business.  Many of our clients couldn’t see themselves doing anything other than farming, and it shows as they’ve spent their entire working life on the farm.

However, this security can have a downside as people become too comfortable and let things slip that they wouldn’t if they were in a more formal environment with greater accountability.

We also see young people starting on the farm given difficult jobs to prove themselves. If you’re part of the family, this may not be an issue as you understand the strategy, but others who come into it do not have this insight causing insecurity.

Despite this downside, there are ways to bring in the benefits of a corporate work environment without losing the reward of working alongside your family.

Procedures and structure

Many operations create procedures on how a job is done. They also write job descriptions that outline the role, requirements, and accountabilities to know exactly what expectations are put on them to succeed.

The benefit of this formality is that everyone working on the farm knows what they are responsible for, including making decisions. They also have a career path that includes remuneration, which should be at fair market value.

Finally, there should be scope to complete training and work with a mentor who can help develop the skills and attributes they want to succeed in their farming career.

More on accountability and decision making

A significant cause of tension in family farms is who, how and when a decision should be made. We’ve seen conflict when a family member’s decision-making is disagreed with by another, and tension builds from there.

From our experience, the best way to avoid this conflict is to give different people an appropriate level of decision making and exclude those who do not need to be involved. It’s about having the right people in the room. For example, an investment decision should be made by the owners involved.

An excellent way to manage decisions is to use a formal decision-making framework, so the lines of who makes what decision are clear and agreed upon. This approach also gives family members freedom to pursue their own goals and entrepreneurship.

This formality can also address the issues that come up when a younger family member at university or not working on the farm is given the same level of decision-making authority as an older sibling who works on the operation. This ultimately leads to tension as the older sibling resents the younger’s equal say. We often see this happen when mum and dad feel all family members should have an equal voice. Instead, we believe those directly involved in the business, working on the farm, should have a greater say than those who don’t. A decision framework will prevent this from happening.

Ultimately, achieving a rewarding career on the family farm for everyone needs some formal structures and procedures to make sure everyone understands their role within the business.

Get in touch with your local SproutAg representative if you have questions about setting up these structures.

Starting farm succession planning

Farm succession planning is focused on the why, what and when with little emphasis on getting the discussion started. It’s not surprising given the sensitivity around succession planning, but it doesn’t need to be a bad experience if you start in the best possible position.

From our starting point, Succession planning can take years as challenges, goals, and aspirations change over time, and the family needs to acknowledge and evolve.

A succession plan should not start as an argument between siblings who expect farm assets to be split overnight. This is a plan for failure, so before any family begins planning, it should be done in a calm and thought out way.

Everyone should have a clear understanding of what they want their role to be on the farm. Roles are essential for the older generation handing over the farm as they need to establish what they will do before and after retirement and what their lifestyle expectations are.

Getting succession planning, or transition planning as we like to call it, relies heavily on defining the older generation’s role. Another essential foundation is determining your family culture so you can line up everyone’s thinking with a shared set of values.

With everyone on the same page with family values, we ask everyone to think about their role in the farm business and what their goals are – this includes those who are not working in the business. With these written down, the next step is to look for common ground and where people disagree and why. It is also essential to look at the business’s health at the same time and flag if a goal is just not possible.

It helps to write down the family culture, roles and goals onto a one-page document. This forces the family to be very clear and concise about what these are. We suggest an independent person or expert who can facilitate the process to provide an objective ear.

In meetings, from the beginning, define an agenda that gives everyone a say to talk about their aspirations and roles. Throughout the process, keep an open mind and listen and speak up and talk about your expectations so that everyone feels ownership over the plan. Like a board meeting, the agenda should include time allocated to keep the conversation focussed and on track. Expect there will be times of conflict; that’s ok; succession planning is personal. You might consider conflict resolution training, so discussions don’t stop with arguments.

Lastly, take the view that transition planning is a live process, so don’t think that the plan is packed away once it is done. Instead, get the family together regularly to discuss and revise the plan as circumstances change.

If you want to talk about succession planning, contact your local SproutAg representative.

Striking a balance between rising farm asset values and compensating family members not working in the business

• Treat the farm as a business
• Plan for change and handover
• Communication is the key to success

Most family farms are complex beasts as each generation lays down decisions and operations over time, creating historical baggage along the way. From our experience, successful families manage this complexity by treating the farm as a business with planning a critical part of its operation.

Families often consider the operation but don’t think about the tension between siblings who work on the farm and those who don’t and their views around rising farm asset values. We’ve seen it often, and if it is not dealt with early on, it can blow up into a family feud.

The way around it is to plan. More often, the successful families treat the farm as a business and include transition planning as part of the operation like they would sowing. The process around planning has changed. Less often are things assumed, and more often, all generations get together to decide what will happen to the farm when the older generation step away from the day-to-day running of it.

So what does a successful transition look like when balancing rising farm asset values and siblings not working on the farm? A robustly discussed and communicated succession plan that has this tension built-in.

The plan should also be a live document that considers what the farm can and cannot do from a business perspective. This approach means you plan for change to reflect the challenges life throws up. The result is a succession plan that clearly outlines who gets and does what on the farm as each generation hands over the operation.

While there is potential for tension, you should view the transition or succession plan as an opportunity to talk and plan for a future that sees the farm stay in the family for generations to come.

If you’d like more information on succession planning, please contact your local SproutAg representative.

Farms have people issues, not farming issues

Even the closest and most functional family will have rows from time to time. A farming family is no different, and sometimes what can start as a minor issue can snowball into a much bigger dispute that risks the family unity and the farm. This is why working through conflict is so essential to the long-term future of the family farm. In this article, we give you an overview and tips on how to manage conflict on the family farm.

Common conflicts

Conflict happens when people cannot accept another’s differences, and this leads to a dispute. If left unresolved, a disagreement in the family will create tension and lead to divisions as different members take sides.

We work with many family farming operations, often helping develop and agree on a succession plan, which is when conflict often happens. Family members disagree on who gets what, who does what, and what those who aren’t on the farm get from the business.

Often we see a conflict between generations and whether the younger will take over the farm regardless of how good they are at farming or business. The next generation may not want to take on the farm, or the older generation may have a hard time handing it over, causing tension if there differences in opinion on how to run the farm and what is produced.

There can also be conflict in the way others handle conflict. One may manage conflict by shutting down conversation or not talking, while another wants to talk it through. This can lead to a toxic atmosphere that makes the tension worse and can erode trust – also a vital part of a successful operation.

How to handle conflict

The first step is to recognise how you handle conflict and understand that others in your family will handle conflict differently. It’s essential to communicate how you manage conflict with the family to know where everyone is coming from.

Another important consideration is to deal with conflict early because the longer it’s left to simmer, the more toxic and difficult it becomes to resolve. The solution is to sit down and talk through mediation so that everyone has their say. At the start of this meeting, everyone should agree on their role in the discussion and whose responsible for what.

We run mediation sessions with our clients, allowing family members to discuss without one being in control of the discussion. A successful session is an open environment where everyone clarifies and explores their interests, issues and underlying needs.

It’s also helpful to focus on negotiation and solutions so that everyone is involved and can agree on the resolution. We also keep these discussions confidential to allow family members to talk through their frustrations freely.

We’ve given a simple outline here; however, working through conflict is delicate and complex. SproutAg runs mediation workshops to help families continue to do what they love – run the family farm.

Can the family business afford to go through a transition?

  • Cash flow and business analysis are a key part of planning
  • Be realistic about your business goals
  • Compromise

You’ve had the first family meeting to talk transition planning, laid out your goals and aspirations for the farm, so what’s next? The next step is to test these goals and aspirations to see if they stack up.

When we work with a family to test the viability of a transition plan, we always undertake a deep-dive analysis of the farm’s finances and estimated cash flows over a five to seven-year period. Cash flow forecasts are critical to understanding what the farm’s yearly average cost of operation is. They are also used to run scenarios to test the different goals or aspirations each family member has.

For example, a goal to double the farm size in 3 years sounds great, but if the reality is achieving this goal relies on too much debt, you risk sending the business broke. In this case, the plan becomes 50 per cent growth.

Another consideration is whether you support mum and dad in retirement and what their lifestyle goals are. If they want a champagne retirement but the farm only has a beer budget, it’s better to know this upfront to better prepare for it, so they are looked after without burdening the farm’s operations.

This analysis is also an opportunity to lay down timelines on when the best time is to transition and whether the farm should grow over time. More often than not, they prove the family operation is more robust staying together than splitting.

A rigorous analysis of the farm’s future cash flows, business plan and scenarios is especially important for families who want to pass the farm down through generations. It shows them the impact of their goals and the viability of the business.

As we’ve said in previous articles, the key here is communication, negotiation, compromise, and acceptance that your goal may not be realistic. This approach will put the family operation in a position that it can afford to transition and compensate family members for their work and provide for them in retirement.

Transition and succession planning is an integral part of your family farm’s success. Talk to your local SproutAg representative to find out more about your succession and transition planning workshops.