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Family Business Matters 01/10 05:45

Family Business Matters 01/10 05:45

Five Phases of Succession Planning

Think through these steps to create a rewarding and effective transition.

By Lance Woodbury
DTN Farm Business Adviser

At some point in your farming or ranching career, you begin to think about
who will take over the business. You realize replacing yourself involves not
just carrying on the tasks you perform every day but also determining control
over the very asset base that provides for your livelihood. It begins to dawn
on you that handing off this business might be complicated.


Realizing the need for succession planning can be triggered by a number of
events, some positive and some negative. A health crisis, accident or untimely
death are perhaps the most dramatic leads into the transition. Or, it may be
more gradual as your heirs choose not to return, and it becomes more difficult
to find help. Sometimes, one's vocational interests simply begin to change, or
you get excited about a different kind of work. Or, maybe tension with the
younger generation or the emergence of differing goals with your business
partners makes a transition more apparent.

Another obvious trigger is the business environment. Sometimes not making
money for extended periods of time causes a business owner to decide he or she
would rather do something else. For this or other reasons, you realize it is
time to begin the handoff.


The next phase in succession involves the younger generation stepping wholly
into the full-time work environment. They may know how to do the work from
growing up on a family farm, but it becomes important for them to work
alongside current employees as adults and develop more professional
relationships with family members. In addition to being a son, daughter, nephew
or niece, they become a valuable coworker or team member.


A potential successor then moves from doing the work to managing others.
This takes a shift in mindset and new skills. Motivating others, delegating and
providing constructive feedback become vital competencies. It helps if they
have learned some of these skills (or at least learned what not to do) by
working somewhere else first, where they are not related to the boss or owner.
If they haven't, finding good education and training in this phase can be
invaluable for successors.


Watching younger family members manage gives the senior generation
confidence in their leadership capacity. The retiring generation can step
further away, handing over significant control. Here, it helps if the senior
generation has something to draw energy or interests away from the business --
a new business venture, travel, board service, mission work or retirement
activities -- in order to give the younger generation the space to lead the
business without feeling watched over or constantly second-guessed.


Because farming and ranching businesses are capital intensive, with equity
building over generations, and because of the significant tax implications of
ownership transitions, the gifting of land, equipment or entities often takes
years. By the time the next generation is running the business, ownership
interests should be moving down the line.

At the very least, have a clear path and expectations for how the new
generation will come to own the business. Not doing so creates a number of
assumptions about who the partners will be, especially if there are potential
off-farm heirs. And, those assumptions are often the cause of significant
stress and family conflict.

Succession involves weighty issues: mortality, identity, money, power and
relationships. Business owners rarely start the process too early; the default
is to keep putting it off precisely because the issues are not easy. But,
thinking through succession in phases can help you identify your next steps on
the path to a rewarding and successful transition.


Editor's Note: Write Lance Woodbury at Family Business Matters, 2204
Lakeshore Dr., Suite 415, Birmingham, AL 35209, or email


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