Phases of succession planning discussed

On Dec. 9, during the Wyoming Stock Growers Association’s Winter Roundup Convention and Trade Show, University of Missouri Extension Agriculture Business and Transition Specialist Wesley Tucker presented on succession planning.

Tucker is a cattle producer with over 23 years of experience assisting agricultural producers throughout the U.S.

As a transition specialist, he assists families through complicated situations which may affect their operations and trains them on how to thrive for future generations, allowing families to remain a family.

“Would you be happy if the day after your funeral, livestock trailers show up to haul all of your animals to the sale barn, the estate auction is scheduled to sell the machinery and the farm is listed with the realtor?” Tucker asked. “Is this what you want the future of your farm to be?”

“If not, I suggest you take farm succession seriously. If you don’t, there’s a decent chance for a portion of you this may very well be your legacy,” he added.

According to Tucker, succession planning is a gradual process involving five phases and should include a slow transition of management and ownership from one generation to the next.

Time away

Part of running a successful business involves creative thinking and building relationships. 

“Succession planning could be seen as a road or treasure map,” he stated. “If you don’t have a map, too many things can affect the outcome, like divorce or death.”

In phase one, it’s important for successors to leave the family operation and take time away to gain exposure to new ideas and people. 

“Encourage kids to go away before they are allowed to come back home,” he added.  “It doesn’t necessarily mean extra schooling, but they should learn additional skills to bring back to make the operation better.”

When they return, they can apply their new skills and knowledge to create opportunities for the farm business.

He encouraged successors to get on-the-job training at another farm or business to interact with different bosses, coworkers and vendors.

Trial period

In the next phase, individuals are encouraged to hire the successors as paid employees and establish clear expectations for them through written job descriptions, employment policies and business agreements.

“Treat this trial period as a test,” he continued. “Sometimes we discover the friction between family and business roles is too much, and if we continue to try to force the business relationship, we may destroy the family ones.”

Tucker suggested allocating one, two or three years to the trial period, setting a planned end date and treating it as a deadline.

“If they are not able to run the operation after five years, then we are failing them if we allow them to continue the family operation,” he stated.

The key is not letting this phase continue in perpetuity. Failing to move past this phase pegs a successor as an employee instead of recognizing the successor.

Involvement

In phase three, the successor needs to start managing a small portion of the operation and earning or buying an ownership share, both management and ownership.

Tucker remined the group, parents tend to micromanage their children, but in this phase, they have to feel more empowered and given the opportunity to make decisions.

Tucker gave an example of a large cattle producer in his area, a father who came to his son the day after middle school graduation and pointed to an empty pen, telling the son to go buy some calves and feed them out that summer.

The father promised not to tell him what cattle to buy, what to feed or when to sell them, as it was his pen to manage. 

The father was there to answer questions if asked. However, the father admitted his son made some mistakes the first summer, but he allowed him to learn by doing. 

“Preparing successors starts when the kids get their first set of chores. Don’t micromanage them, rather manage and train them to be their own problem solvers,” he added.

When it comes to ownership, heirs must acquire a share in something, otherwise they won’t know they are building their own future and not someone else’s.

Advancement

During phase four, the successor should slowly take on more management responsibility, including finances. 

“Many families get to this phase but can’t bring themselves to turn over the checkbook,” he added.

Tucker told the story of a successful farmer who continually told him his kids were going to lose the operation after he was gone.

The farmer kept an iron fist on the checkbook and operations and did not teach his children because he was too afraid of them losing it.

“I don’t know if his kids lack financial management skills, but he never gave them a chance to learn. Now, they’ll face a steep learning curve when they inherit the farm, having never seen its finances,” Tucker shared.

If a successor is to be successful, they need to understand not only the production factors but also the finances, purchasing requirements and marketing responsibilities.

Majority

Successors become the majority managers of the operation in phase five, holding a majority stake and making most of the business decisions.

“Again, this does not mean tossing the keys and walking away,” he said. “It means our roles change and we shift from focusing on our own success to helping our kids be successful.”

It may be necessary to transfer ownership of assets and separate operating assets, such as livestock and machinery, from land ownership.  

However, an advantage to asset transfer before death is the next generation has the certainty of knowing they are investing in a future they own.

The transition may be difficult, but start the process gradually and work through these five phases to make the shift smooth. 

Melissa Anderson is the editor of the Wyoming Livestock Roundup. Send comments on this article to roundup@wylr.net.