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Farm (Pre)Transition – Situational Awareness

Name: Aaron Honess Date: February 18, 2011


The background……. • How many of you have attended a seminar, read an article or two, read a book or watched a TV program on farm transition/succession in the last year? • Information overload • Less on all the different theory, strategies, and options and more about your situation –Chartered Accountants & Business Advisors

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The message……. Before you go too far down the transition path: • Take stock of your situation (business, family, and self) – Prepares senior partners for decisions that will need to be made – Guide you to a successful transition (either to next generation or out)

–Chartered Accountants & Business Advisors

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Your Brain on Succession This is your normal brain.

–Chartered Accountants & Business Advisors

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Your Brain on Succession This is your brain thinking about succession.

–Chartered Accountants & Business Advisors

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Your Brain on Succession Why does your brain look like a fried egg? Tax Governance Ownership structures Shareholder agreements Wills Valuations Training and development Labour, management, ownership Roles and responsibilities Profitability Long-term vision Retirement plan Estate plan Advisory board Family meetings Non-farming children –Chartered Accountants & Business Advisors

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Succession Analogy When you are looking to buy a tractor, what steps do you generally go through before you make the final purchase?

–Chartered Accountants & Business Advisors

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Succession Analogy What response do you think you’d get from a salesman if you asked him what’s the best tractor for me?

–Chartered Accountants & Business Advisors

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Why so much emphasis on awareness? • It’s my experience that in a transition plan, the first 11 months are to decide what to do and the last month is to formulate and implement the strategy. • The theoretical, perfect solution is almost never practical. • Practical solutions are almost always based on your situation. –Chartered Accountants & Business Advisors

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What is succession? “Succession is the process of ensuring the continuation of a family farm down through the generations. It involves choosing and grooming the successor(s), planning for the future, coping with the transition, communicating the change to the family and the business, and letting go gracefully.” “Managing the Multi-Generational Family Farm” Canadian Farm Business Management Council

–Chartered Accountants & Business Advisors

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Questions Where is the business going? An end game or vision helps: • Prioritize objectives • To get team members to contribute effectively • Align effort • Measure progress • Successors understand “What’s in it for me?” • Successors decide if the want be a part of it –Chartered Accountants & Business Advisors

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Succession Questions What are the implications to you, the business and the family, if you do not deal with your succession issues?

–Chartered Accountants & Business Advisors

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Questions Do you want this business to continue as a viable entity?

–Chartered Accountants & Business Advisors

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Questions A Farmers Will I LEAVE: • To my banker, my soul – he’s got a mortgage on it anyway. • To my farm advisor, the farm plan that he did for me – maybe he can understand it. • To the junk man, my machinery – he’s had his eyes on it for years. • To my undertaker a special request – six machinery and fertilizer agents for pallbearers please. They’re used to carrying me. • To the weatherman, rain, sleet and hail for the funeral please – no sense in having nice weather now. • To the gravedigger, don’t bother – the hole that I’m in should be deep enough –Chartered Accountants & Business Advisors

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Questions Can the farm financially support multiple generations?

–Chartered Accountants & Business Advisors

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Questions Can the farm financially support multiple generations? Example: Add’n Wages/Benefits Contribution Margin

$60,000 40%

= $150,000 addition revenue required to maintain current profitability levels. –Chartered Accountants & Business Advisors

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Questions • How much income do you require to meet your retirement needs? • Do you have enough off-farm income to support your retirement needs? • If not, are you prepared to put your retirement in the hands of your successor? • Can the successor pay for it? • Will it be fair market value or some other value? –Chartered Accountants & Business Advisors

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Questions Do you know what everyone else is thinking? – Don’t assume.

–Chartered Accountants & Business Advisors

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Questions • When would potential successors be entering the business? • Does your business have an opening? • Do the potential successors have the skills required to fill the positions?

–Chartered Accountants & Business Advisors

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Questions Are you able to answer the following question for your children entering the business: “If I go back to the farm, my expectations are ….?”

–Chartered Accountants & Business Advisors

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Questions Expectation differences between Baby Boomers and Xers. In viewing….. Their Job

BOOMERS Expect (1946-60) A “life-time” career

Workplace Comm.

Diplomacy

Work Ethic

Drive to succeed

Advancement

To be judged by their peers To be followed

Policies and procedures Work Focus

Balance while succeeding To be judged by merit To be challenged

Get results and build relationships

–Chartered Accountants & Business Advisors

Xers Expect (1961-80) Diverse “short term” experiences Directness, bluntness

Get results

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The Multi-Generational Workforce Traditionalist • •

• •

• •

Born 1900 – 1945 Influenced by people: – Joe DiMaggio, Dr. Spock, Alfred Hitchcock, the Rat Pack, Franklin Roosevelt, John Wayne, Bob Hope, Betty Grable, Betty Crocker Influenced by places: – Pearl Harbour, Normandy, Hiroshima, Korea, Bay of Pigs, Midway Influenced by things: – Things were scarce, “Save for a rainy day”, “Waste not, want not”, “Make due or due without”, “Stiff upper lip”, “Bear any burden, pay any price” Influenced by events: – World Wars I & II, the roaring twenties, the Great Depression, the New Deal Defining word: Loyalty Management Style: top down approach modeled after the military chain of command

–Chartered Accountants & Business Advisors

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From “Connecting Generations, The Sourcebook for a New Workplace” by Claire Raines


The Multi-Generational Workforce Baby Boomers • Born 1946 - 1960 • Influenced by people: – Martin Luther King, Richard Nixon, John Kennedy, Rosa Parks, Beaver Cleveland, John Belushi, Janis Joplin, Captain Kangaroo, Captain Kirk, the Beattles, the Partridge family, Rolling Stones

• Influenced by places: – Watergate Hotel, Hanoi Hilton, Love-ins, Laugh-In, Woodstock, the bedroom, the boardroom, the delivery room, the divorce courtroom

• Influenced by things: – bell bottoms, mood rings, Brooks Brothers suits, Rolex watches, junk food, junk bonds, LSD to SED

• Single most important invention: TV • Influenced by events: – Vietnam war, Watergate, the women’s and human rights movements, OPEC oil, embargo, stagflation, recession

• Defining word: optimism • Management Style: change of command –Chartered Accountants & Business Advisors

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The Multi-Generational Workforce Generation X • Born 1961-1980 • Influenced by people: – Bill Clinton, Monica Lewinsky, Ted Bundy, Beavis and Butt-head, Dilbert, Denis Rodman, supermodels, Madonna, Michael Jordan

• Influenced by places: – Former Soviet Union to Somalia, from Scotland to Starbucks, from the International Space Station to the Internet

• Influenced by things: – Cable TV, Digital TV, satellite TV, VCR’s, video games, fax machines, microwaves, pagers, cell phones, PalmPilots

• Single most important invention: personal computers • Influenced by events: – Violence, Aids, crack cocaine, drunk drivers, the world is not a safe place any more, single parent homes, latch-key kinds

• Defining word: skepticism • Management Style: self command –Chartered Accountants & Business Advisors

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Questions • Who will lead? Management vs. labour. • Will all participants in the business have clearly defined roles and responsibilities? • When will the senior partners retire or move back to a labour role? • Do the successors have the skill set to effectively manage the business without you? –Chartered Accountants & Business Advisors

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Questions When do you plan on giving up control?

–Chartered Accountants & Business Advisors

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Questions Are you prepared for the “Storm”? Tuckman’s Developmental Sequence in Small Groups

Stage 1 Forming

Stage 2 Storming

–Chartered Accountants & Business Advisors

Stage 3 Norming

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Stage 4 Performing


Questions Stage 1 - Forming

Excitement

Anticipation

Anxiety

Optimism

Confusion

Uncertainty

Assessing situation

Feeling out others

Getting acquainted

–Chartered Accountants & Business Advisors

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Questions Stage 2 - Storming Reality sets in

Frustration

Dissatisfaction

Adjustment anxiety

Disagreement over priorities

Struggle for leadership

Tension

–Chartered Accountants & Business Advisors

Hostility

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Questions Stage 3 - Norming Leadership acceptance

Consensus

Trust established

Standards set

Cooperation

Shared goals

Team cohesion

Coping

Acceptance

–Chartered Accountants & Business Advisors

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Questions Stage 4 - Performing Teamwork

Cohesiveness

Leadership

Performance

Flexible, task roles

Openness

Helpfulness

–Chartered Accountants & Business Advisors

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Questions Are you prepared to adjust the way you lead? Hersey and Blanchard's Situational Leadership Model

–Chartered Accountants & Business Advisors

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Questions • Has someone on the team been appointed to quarterback the process? • Can you identify your team of advisors who can help you through this process? – Financial advisor – Accountant – Lawyer – Banker –Chartered Accountants & Business Advisors

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Succession Analogy (continued) What prompts you to look for a new tractor and how far in advance do you begin your search?

–Chartered Accountants & Business Advisors

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My Top 9 Ways To Kill The Family Farm 1. 2. 3. 4. 5. 6. 7. 8. 9.

Let the kids take care of it when you’re gone. Rush or let your children into the business at a early age. Lack of long-term vision for the farm. Assume you know what everyone else is thinking. You’ll live forever. Ignore mortality. If you can’t live forever, make sure you can control the farm business from the grave. Expect successors to do it exactly as you do; despite the fact that they can get to the same end with different means. Never retire, never pass along management responsibilities and never include the successors in management decisions No formalized organizational structure or clearly defined job responsibilities.

–Chartered Accountants & Business Advisors

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Don’t wait for a crisis? “What gets people on a diet?” A MAJOR CRISIS! If not crisis than certainly “out of necessity”.

–Chartered Accountants & Business Advisors

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Succession Analogy

–Chartered Accountants & Business Advisors

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Farm (Pre) Transition- Situational Awareness  

This presentation asks you the questions required when doing succession planning. Questions like: Where is your business going? How much inc...