Succession Assets vs Management
Succession. When the word succession is used in agriculture circles most think of who gets what and when. Typically when any industry group hosts a panel on succession, they include a lawyer, an accountant, a young and old rancher; all talking about passing down the assets. When you run an agriculture business, succession is much more than the passing of the asset. The stickier part of succession is management succession. Who controls what? How are business decisions made? How do we help the outgoing generation step aside with confidence? How does the incoming generation develop the competence to step up? At the Ranching for Profit School, we discuss management succession. We teach how to build effectiveness areas and the importance of designing positions based on these effectiveness areas. This process forms the basis for management succession.
Succession planning must start with a clear understanding of the desired outcomes. Too often those who own the asset make decisions about asset succession that undermine management succession. These decisions are often made with good intentions. We want to treat our offspring fairly and we want to avoid paying unnecessary estate taxes. Unfortunately, these good intentions often make it difficult for those operating the business to have the autonomy needed to be successful.
For example, if ownership wants to keep the property as an intact operating unit, and allow those operating the business the freedom to determine enterprise mix and other key business decisions then the asset succession plan should support these desired outcomes. We often hear some form of “I want my kids to all be ranching together on this place when I’m gone.” This is a fairy tale that sounds nice but is about as likely to come true as Snow White. It works on rare occasions, but often the result is divided up ownership with units too small to support a family and worse yet, siblings that no longer speak to each other.
When current ownership makes the plan with clear intentions, that plan should be communicated to all interested parties. Unspoken expectations and surprises following the blessed event also tears families apart. If you are the current owner, you need to clearly communicate the plan. If you are an expectant heir, you can ask with love for clarity. “Mom and Dad. My family and I love being here on the ranch with you. But if we spend the next 10-20 years here, I will not be very marketable to go do something else at that point in my life. I’ve brought my spouse back here with me and we are growing a young family around this ranch. I need to know your plan for what you’re going to do with this now so I can make these important decisions with full knowledge of the plan.”
We at RMC hosted our first in-house succession planning intensive this past September, Ranching for Generations. It was amazing! Dave Pratt took the lead on developing the course and taught the inaugural one. Participants left with a clear goal for their succession plan, had an opportunity to evaluate alternative strategies, developed a timeline for succession and then created an action plan for the next few months based on that timeline. We are excited to announce that we will be offering the Ranching For Generations Succession Intensive as an annual course, with Dave as the instructor. This is only open to alumni businesses of Ranching for Profit. The business must have sent at least one person through the school to be eligible to attend, but not all persons attending the succession intensive must be RFP alumni. Click here for details on the upcoming succession intensive.