Specht: Generational transfer top for young producers

“Only two things matter in family ranch succession planning, and they are perceptions and expectations,” said Family Dynamics National Development Manager Dave Specht.

In a presentation geared toward the next generation of ranch owners, Specht discussed important steps for future producers to implement for generational transfer.

Family system

“I want next generation ranch owners to write down names of people in their family system to understand who fits where,” said Specht.

When working with key parties in ranch succession, Specht advised creating a three-circle Venn diagram, with circles titled family, ranch and owner.

Individuals who fit into the first category are family members who do not have ownership of the ranch and do not work on the ranch.

The second category, which is rare in agricultural operations, includes an individuals who have some ownership of the ranch but are not members of the family and do not work on the ranch.

Members of group three are those who actively work on the ranch, are not part of the family and do not have ownership.

The fourth group of people is family members who have some ownership in the ranch but do not actively work on the ranch, whereas group five includes individuals who work on the ranch and have some ownership but are not part of the controlling owner family.

Individuals who fall into group six are family members who actively ranch but do not yet have any ownership.

Those in group seven are family members who work on the ranch and have some ownership of the ranch.

Different concerns

It is important to understand where individuals fit in the family system to address questions and concerns that each group has, said Specht.

He noted that ranch employees who are not part of the family often have concerns about their job, as well as the next generation of ranch ownership not being prepared to manage the ranch or build working relationships.

Family members who have some ownership but are not working on the ranch typically have questions about the management of the business.

While members of this group may get a bad reputation, Specht encouraged next generation ranch owners to view the business from their perspective.

“Imagine that we have an asset that we’re going to expect someone else to manage. We have no say with that asset, and many times we’re not communicated with how well or how poorly that asset is being managed,” he said.

Individuals who are working on the ranch and have partial ownership but are not part of the family may feel outside of communications since they’re not part of conversations that take place around the dinner table.

Family members who work on the ranch typically have questions concerning when they will be making meaningful business decisions and be in management positions.

Those in the controlling owner’s group often have questions that involve the commitment of the next generation to the ranch, as well as cash flow in their older years.

Contingency plans

“The second key to generational transfer is to create contingency plans,” said Specht.

The first plan that should be created is an ownership contingency plan, which is essentially listing what the family owns, how it’s owned and who owns it.

“Then, go through the basic exercise of figuratively putting an ‘X’ through each name, creating lines below that describe where ownership would flow if any of those owners were to pass away,” he explained.

“I advise that next generation ranchers make this a top priority because if they’re going to be part of the ownership, they should be interested in who they’re going to be partners with,” Specht continued.

Next generation ranch owners should also create a management contingency.

“In agriculture, what I’ve found is that there are typically one or two people in every operation who make some meaningful decisions that no one else knows how to make,” said Specht. “What I’m looking at is for young people to answer the question, what are the one or two things on the ranch or decisions that are made by one or two people?”

Inspired questions

According to Specht, the third element for successful generational transfer is to ask inspired questions that allow for open conversation between interested parties.

“The reason we’re independent ranchers or business owners is because we don’t like being told what to do,” said Specht. “I started developing a set of questions, so I could get out of the mode of just telling people what to do and start asking better questions.”

Inspired questions have certain criteria to meet, said Specht.

“One is they encourage honest sharing. The second is the questions need to be open ended. They don’t necessarily have a right answer and requires reflection. Often the answer will also change over time,” he explained.

An example question for the next generation to ask their parents is to describe the greatest non-financial outcome they would like to achieve in the estate plan.

“Ultimately, what I’m trying to get at with this question is, what do we really care about? Many times, these questions have value-based responses,” concluded Specht, noting that answering such questions can be the beginning of a successful and smooth transition of ownership on the ranch.

Emilee Gibb is editor of Wyoming Livestock Roundup and can be reached at emilee@wylr.net.