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WELCOME TO YOUR LEGACY

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The long-term health of a family farm has always depended on the wise steward-

ship of its resources. Every farmer knows to expect the unexpected. The most successful farmers are those who are able to take advan-tage of current opportunities while preparing for the potential challenges of tomorrow.

Succession planning is part of stewardship and preparation—and that’s why the Farm Journal Legacy Project is devoted to helping farmers determine what will happen to their farm in the generations to come.

This practical workbook is designed to be both a catalyst for you to engage in the succes-sion planning process and to help you start navigating the process. We hope we can help you understand the issues you’ll face and the options you have. In offering this workbook, we make several assumptions. We suspect that you’re interested in learning more about:

1. maintaining or improving your current lifestyle.2. preparing your family and your farm for whatever might come.3. providing reassurance that an unforeseen catastrophe (death, disability,

dissolution or divorce) will not destroy the operation.4. preparing the next generation for a leadership role in the operation.5. creating a lasting legacy that will endow the family for generations.

Our experience has shown that a comprehensive succession plan is key to achieving these goals. We know that succession planning is not always simple, but we also know that it prevents a lot of extra work, worry and expense down the road.

If, at any time, you have questions or concerns, or just want to talk it over, please don’t hesitate to contact me. I am more than happy to help you reach your succes-sion planning objectives.

All the best,

Kevin Spafford Farm Journal Succession Planning ExpertLegacyProject@FarmJournal.com

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CONTENTSChapter 1: Can We Talk?A comprehensive succession plan builds families and futures.

Chapter 2: You MatterYour thoughts and desires about the farm business are important.

Chapter 3: By Design or Default?A sound plan helps maintain focus during the succession process.

Chapter 4: Is It Time?How to know when to pass on the operation to the next generation.

Chapter 5: The Right FoundationA viable business model grows a more robust operation.

Chapter 6: Prepare to LeadBusiness leadership transition doesn’t happen overnight.

Chapter 7: A Key to ContinuityA buy-sell agreement is key to keeping the farm together.

Chapter 8: Ready for Retirement? A fully funded retirement plan is paramount to successful transition.

Chapter 9: Protect the Farm Manage estate taxes with comprehensive succession preparation.

Chapter 10: Draft Your TeamA professional succession planning team makes all the difference.

Chapter 11: The Miracle of CommitmentCommit today to ensure future business and family success.

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77E-mail: LegacyProject@FarmJournal.com Phone: (877) 523-7411

Copyright 2010, Farm Journal Media. All rights reserved. Farm Journal is a registered trademark and the property of Farm Journal Media.

Vol. 1, Published by Farm Journal Media, P.O. Box 958, Mexico, Mo. 65265.

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Can We Talk?

Chapter 1

“We can’t solve problems by using the same kind of thinking we used when we created them.”

Albert Einstein

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In 1911, Grandpa bought a section of the best bottomland for $200 an acre. When Dad inherited the farm decades later, it

was valued at $500 an acre. Using a will and estate planning, Dad owned the farm outright, and his sisters were left with other assets. Passing the farm to the oldest son may have been acceptable back then, but today the farm is worth several million dollars, and there are more people involved.

These days, when Dad dies, an active son might assume the management role in the family farm. A second son practices law in the city, and a daughter has her own family in another state. Without proper planning, the operation gets divided three ways. The active son works the farm, cares for Mom and is beholden to inactive partners.

Decisions that used to be made by two committed active participants are now made

through long-distance consultations with inactive partners. Active and inactive owners face the challenge of managing the farm from differing perspectives and objectives.

Active partners want to reinvest earnings and grow the operation. Inactive partners desire net income and a return on investment. Active partners struggle for control. Inactive partners own an investment of significant net worth but no value unless the farm is sold.

There must be a better way to position the operation for growth, provide equitable distri-butions to all of the children and create a legacy that will endure for generations.

VALUE IN CRAFTING A PLAN. The objective of a succes-sion plan is to create a business that will endure beyond the current generation. The planning process causes an owner to define specific business objectives, retirement aspi-rations and financial goals as well as compen-sate for estate planning obligations.

It’s hard to pinpoint the single best advan-tage of good planning. But it is easy to see that a successful business with a long-term perspective, adequate financial resources and competent leadership is far more attractive than a business that is not proactively planning and consequentially liquidated at the retire-ment or death of the owner.

Only 30% of all farms and agribusinesses successfully transition from the first to second generation. Of those that do survive, 10% transition to a third, and of the few remaining, less than 4% make it to a fourth.

Considering the size of the assets at risk and the importance of success, why do we con-tinue to fail, generation after generation? There are three broad reasons why family

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LET’S GET STARTED

A comprehensive succession plan builds families and futures.

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operations do not successfully transition to the next generation as a going concern:

1. Incompatible estate planning2. Insufficient capitalization3. Failure to prepare the next generation

for a leadership roleThe primary purpose of succession planning

is to promote, preserve and protect the family’s most valuable assets. A plan minimizes uncer-tainty and allows farm families to control their destiny. It encourages family farm owners to plan for success and enjoy life.

Succession is smart business. The decision to plan is smart business. For a farmer, plan-ning for succession is a clear statement that the long-term success of the family operation is important. The collapse of a family farm due to no succession plan is inexcusable.

Succession planning is not an event; it’s a process. That process is comprised of a series of simultaneous and consecutive events that transition the family operation from one generation to the next as a going concern. Succession planning and implementation should provide infinite value, enduring rewards and create a lasting legacy.

A properly designed and judiciously imple-mented succession plan creates a better outlook for family farm owners and their successors. A succession plan also generates immediate results through increased security. Loyal employees and their families will appre-ciate knowing there is a solid plan in place to continue operations beyond the current generation. Customers, third-party vendors, suppliers and other complementary businesses will also appreciate the knowledge that your business is designed to grow and develop into the future.

So, when is the right time to start planning for succession? How about right now? The most important part of succession is a plan, and the most important step is the first.

LET’S GET STARTED

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CHAPTER 1 EXERCISE

THE FAMILY MEETING

1. SCHEDULE a family meeting.

2. DISTRIBUTE “Conversation Starters” (see page 13) to all family members.

3. OUTLINE specific and attainable objectives for your family meeting.

4. DECIDE who to include (active and inactive family members, loyal employees).

5. DISTRIBUTE an agenda.

6. CREATE point-by-point discussion items.

7. INCLUDE discussion topics suggested by others.

8. ESTABLISH meeting ground rules. Some simple ground rules to follow include:■ Involve all active family members.■ Don’t personalize issues (us versus them).■ Stick to the agenda, don’t rehash old grievances.■ Listen without judging, hear each other out. ■ Seek common ground and mutual benefits.

9. END with a plan outlining the next steps, who’s responsible and time frames.

Are you ready to begin the succession planning process? The best place to start is with a simple family meeting. Here are tips on how to set up a meeting.

You can also find this tool atwww.FarmJournalLegacyProject.com.

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You Matter

Chapter 2

“If there is any one secret of success, it lies in the ability to get the other person’s point of view and see things from that person’s angle as well as from your own.”

Henry Ford

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Several years ago, a highly respected family agribusiness owner named Dave told me, “Communication is the heart-

beat of family business.” Back then, Dave’s operations covered sev-

eral Western states. The business involved his father as financier, one brother who ran the day-to-day operations and another brother who managed the shop. Dave was a hard-working “agripreneur.” As the founder of the business, he invested 90-hour weeks, building a multimillion-dollar enterprise.

The middle brother was a hard worker, also willing to invest extra hours and dedicatedto a “service first” attitude. Dave’s youngest brother lacked the same work ethic and level of dedication. He came to the family business from a corporate job where eight-hour days

and five-day weeks were sufficient to gener-ate a paycheck. He clocked in at 8 a.m., rarely worked past 5 p.m. and his weekends were always free. He was good at his craft, but he wasn’t committed to creating the vision Dave thought they shared.

The day I met with Dave was coincidentally the same day he filed for bankruptcy. As we sat over coffee discussing the pillars of good business, he just shook his head. Dave relayed how he had failed to communicate the impor-tance of teamwork. He had assumed that everyone saw the same vision, felt the same weight of responsibility and worked toward the same goals. Dave thought that each active family member was committed to success, no matter how difficult the task or insurmount-able the challenge.

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OPEN COMMUNICATION

Your thoughts and desires about the farm business are important.

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In the end, it became apparent that there was a communication breakdown. The operation suffered from false assumptions and faulty expectations. Dave’s youngest brother was an indicator of a bigger problem but not neces-sarily the cause. He was the symptom of an acute lack of open, honest, two-way commu-nication. A business can thrive only in an envi-ronment of healthy, open communication and will suffocate and die where communication is blocked, impaired or otherwise constrained.

COMPREHENSIVE COMMUNICATION. If unfettered commu-nication is critical to success, how does a busi-ness ensure a healthy dialogue? Take a few moments to compare and contrast the com-munication systems of a big business struc-ture with the workings of a typical family operation. In the corporate world, we expect well-defined avenues of communication. When a person starts a new job or receives a promotion, there is a comprehensive dialogue regarding job descriptions, responsibilities, accountabilities, wages, benefits, perks and other opportunities.

In a family operation, hiring is often based on “We’ll find a place for you…” Then we fall into familial roles and patterns of behavior where Dad is the authority and sons and daughters are obedient children. The commu-nication link in a family business often breaks down in the roles we play and the comfort zone of family relationships—the zone where the father is always Dad and the children are always kids.

BIGGER THAN SELF. If the goal is to expand thebusiness, the solution involves acting like a larger business. Assign new roles and respon-sibilities. Use job descriptions and employee handbooks. Create salary schedules and offer benefits. If parents and their children co-own the operation, they must act like business

OPEN COMMUNICATION

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ties, skills or vision, all of which may serve as the balancing characteristics necessary to build a business bigger than self.

5. Know that it is OK to disagree. If two people agree on everything, one of them

is unnecessary. This little quip is often said, yet rarely understood.

Using the five keys to good communication, you should construct a consistent communica-tion strategy. We recommend regular family meetings scheduled at a time that is conve-nient for most of the participants. Meet in a location that is not home turf for anyone. Create and distribute an agenda in advance, encouraging each participant to offer modifica-tions, suggestions and additional concerns. Establish ground rules; Robert’s Rules ofOrder may be a little stiff, but mutual respect, common courtesy and avoiding personal attacks may help keep everyone on task. Always conclude with some form ofaction and agreement for follow-up.

Regular family meetings can help eachfamily member consider and then share their succession goals and aspirations.

partners. Base authority on ownership per-centages or managerial roles.

Just as in Dave’s family, the success or fail-ure of a plan is always determined by the qual-ity and the quantity of two-way communication within the family. A family with good commu-nication channels can accomplish the seem-ingly unachievable, whereas a family with poor communication will find almost any challenge impossible to overcome. In your family, is there a success-ready environment, with a continuous exchange of ideas, desires and candid discussion?

A good planning environment is based on mutual trust and respect. If you have that, you have a situation ripe for planning and imple-mentation. If you do not, we recommend a crash course in communication.

FIVE KEYS TO GOOD COMMUNICATION

1. Clearly define your objectives or the intent of each interaction. Before you

engage in a conversation, write an e-mail or make a phone call to clarify the purpose. Con-flict often occurs because of misunderstand-ings and unintended conversational tangents.

2. Seek first to understand the other person’s point of view. It is easier to grasp

an opposing opinion when you start from a point of commonality. When two people stand side by side, they look in the same direction; from there, it is easier to explore what’s differ-ent about their perspectives.

3. There are many roads that lead into town; be open to alternative routes. Discussions

are more productive—and fun—when we remember that there is no single right way to do anything. A simple example: There are many different ways to tie shoes.

4. Acknowledge that it takes complementary qualities to create a successful operation

that can stand the test of time. Misunder-standing may be based on motivations, abili-

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A Snapshot of Business TransitionFor current owners of most farm operations, the decision of how best to pass their ownership interest to the subsequent generation is an ongoing concern. Past experience tells us that among first-generation operations:

70% will fail to transition to a second generation

90% of those remaining will fail to pass to a third generation

96% of the remainder will never reach a fourth generation

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CHAPTER 2 EXERCISE

CONVERSATION STARTERS

3. Should family members not active in the operation attain/retain an

ownership interest in the operation? (Yes or No)

If no, how should business assets/ownership interests be distributed?

1. Are you interested in participating in the family operation? (Yes or No)

If yes, in what capacity?

4. If you want to be included in the operation, are you willing to personally

invest in the business? (Yes or No)

5. What is your biggest question or unanswered concern regarding your

family’s succession intentions?

6. Are there other succession-related topics/questions you would like to add

to the agenda for your family meeting?

2. Are you prepared to assume that role/responsibility? (Yes or No)

If no, what will it take to prepare for that role/responsibility?

Your success at transitioning the business to the next generation depends on the quality and the frequency of communication within the family. Distribute the following conversation starters before the initial succession planning discussion to help family members consider and then share their goals and aspirations for the family business.

You can also find this tool atwww.FarmJournalLegacyProject.com.www.FarmJournalLegacyProject.com.

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By Design or Default?

Chapter 3

“The diligent farmer plants trees, of which he himself will never see the fruit.”

Cicero

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