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Better DecisionsKey issues in developing a sound succession planSelecting and developing a successor and managing the transfer can be delicate and difficult processes. Some necessary steps and guidelines to make it work for youby PETER COUGHLER"So boil it down for us. What are the main issues that we have to think about in developing our succession plan?" This is a question asked by many farm families as they start to think about the future of the family farm.Farm families face daily pressure and have busy lives, so they often want to find out what is the fastest route from Point A to B when it comes to succession. However, the succession process is not always about the fastest route but rather about finding the best route. To achieve this, some key issues need to be considered on the route. Communication. One of the first key items is to open the lines of communication by starting to talk about succession or farm transfer. Open and honest communication is critical to the success of the process. Good communication builds trust and keeps minor misunderstandings or disagreements from becoming more serious. Once communication has started, everyone should be prepared to discuss his or her own personal and business goals and underlying beliefs. Strategic direction. Family discussions related to goals and succession need to be framed within the context of a long-term plan and whether the ultimate goal is to transfer the farm business to the next generation. In some situations, this is relatively straightforward because there is no successor or no one interested in taking over the operation. In others, it can be a complex and intertwined discussion involving the interaction of personal, family and business issues. This is why the lines of communication need to be open. Cash flow and profitability. Cash flow and profitability can have a significant influence upon the family's long-term thinking and strategic direction for the business. Are they adequate to meet the immediate and future needs of the business? If it is not currently profitable and cash flow cannot meet current commitments, then serious questions need to be asked and strategies developed to address the shortfall. A program is available through Agriculture & Agri-Food Canada to help producers complete a farm financial assessment. It is called the Canadian Farm Business Advisory Services' Farm Business Assessment. This program provides eligible producers with up to five days' worth of consultation services to complete a farm financial assessment and develop an action plan. There is also an opportunity for a follow-up at a later date to discuss the producer's progress on the action plan and to get further advice, if needed. Successor selection. If, after considering the question of business profitability, the family's goal is still to pursue the transfer of the farm within the family, a successor or successors will need to be identified. In some businesses, there will clearly be one successor who is keen and capable. In others, there may be someone who is partially interested, multiple successors or no obvious successor at all. One approach, according to the Ontario Ministry of Agriculture and Food's publication "Planning the Future," is to "have specific criteria which will be used to judge the merit of the various candidates. If everyone involved in the grooming and selection process understands what qualities the successor needs to have and can see how the successor possesses these qualities, the transition has the greatest likelihood of taking place with everyone's blessing." Successor development. No matter what, the successor(s) will need training and development. It has been stated that "able successors don't happen by chance, they need to be carefully selected and groomed for the job." This training and development will vary, depending upon the nature of the farm business and upon the individual's background, interests and abilities. Children in a family business absorb a great deal about the business, even if no one is specifically teaching them. However, there should still be a training and development plan. The "successor development plan" will be investigated in a future article in this publication. Financing. Another key question is "How will the transfer be financed?" Or, in other words, how will the founder's retirement be paid for? Options include family loans and mortgages, external debt (i.e. bank loans and mortgages), sweat equity and the list goes on. However, the issues related to the various financing options actually reflect back onto the cash flow and profitability matters discussed before. Develop a multi-disciplinary team. There are many different components and considerations when developing a succession plan. There are family goals and objectives (family dynamics will play a role in these), strategic planning, retirement planning, financing, tax and legal aspects, to name a few. Given the complexity of each of these specialties, farm families might consider the establishment of a multi-disciplinary team to help them with the succession plan. Each member of this advisory team - bank manager, lawyer, accountant, etc., will be able to provide their professional ideas, comments, suggestions and advice, which will prove invaluable in pulling the plan together. Set a timetable. Finally, a timetable for the implementation of the plan is needed. Key activities need to be prioritized with deadlines to assist with monitoring and measuring progress and identify any adjustments needed.
For further information and an application for the Farm Business Assessment, farm families can contact the Canadian Agri-Renewal Services Office at 1-866-452-5558 (toll-free) or in northern Ontario, call 1-800-461-6132 or visit online at www.agr.gc.ca/renewal. BF Peter Coughler, M.Sc., P.A., is OMAF's Succession Planning and Business Agreements Program Lead, based at the OMAF Brighton Resource Centre. He can be reached by phone at (613) 475-4908 or by e-mail at peter.coughler@omaf.gov.on.ca.
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