Annie’s Project – Education for Farm Women Annie’s Project – Education for Farm Women a 501(c)(3) organization.

Analyze Your Situation Succession Planning Part Three Analyze Your Situation

Three Important Considerations SWOT Analysis Strengths, Weaknesses, Opportunities and Threats Risk and Barriers to Succession The 5 D’s : Death, Disagreement, Divorce, Disaster, and Disability Fair vs. Equal Valuing contributions and determining priorities for off-farm and on-farm heirs or other business partners SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats to a farm or ranch business. SWOT identifies the internal and external factors that are favorable or unfavorable to achieve the farm and ranch objectives. Identification of SWOT’s is essential because subsequent steps in the process of planning for achievement can be derived from the SWOT and some goals may have to be revised based on the skills assessment of the management team.

SWOT Analysis Evaluate Explore Strengths Insights into your business Weaknesses Opportunities Threats Explore Insights into your business Decision points New ideas from family, partners and advisors A tool to help evaluate the strengths, weaknesses, opportunities, and threats to a business- including a farm or ranch. Every member of the team should be involved in the process. Analysis helps you gain insights into the past and think of possible solutions to existing or potential problems. Weaknesses- again mostly an internal look at the farm or ranch and should identify factors that need to be addressed to run a successful business. Strengths- mostly looks internally at the farm or ranch and answers the question “What does each member of the family or business bring to the business.” Threats – again mostly external. What are some of the conditions you may or may not have control over that could affect the business. (interest rates, weather, competition, etc) Opportunities- these are considered mostly external. Are there opportunities available to your business, new enterprises, low interest loans, etc Strengths may counter balance weaknesses, Opportunities may offset Threats Some things to consider. Lead a discussion relating to the Human Resources and Insurances in the handout and how they might fit into a SWOT Analysis. If the goal is not attainable after comparing to the SWOT, a different goal or adjusted goal should be selected and the process repeated. Decision makers can use the SWOT’s to determine whether the objectives (goals) of the farm or ranch business are attainable with the current management, capital, etc. The SWOT is particularly helpful in identifying areas for improving the farm or ranch business. Uses of the SWOT: To achieve it’s goals (objectives) SWOT can be used to set goals To define strategic issues facing the farm or ranch business To analyze existing strategies for moving the farm or ranch business through a transition To do both an internal and external appraisal of the farm or ranch business, such as an assessment of it products/services and an assessment of the farm or ranch business life cycle To monitor results. As a bench mark to determine if the farm and ranch business goals are being implemented and achieved To establish critical success factors. To develop new/revised strategies, objectives and goals SWOT Analysis: A tool for making better business decisions Hand out and Reference Material: Farm-Risk-Plans.usda.gov USDA-RMA, August, 2008 Introduce the Ryan Family case study. Give the class time to read the case study and fill out the SWOT analysis sheet. Class discussion of the exercise answers as a guide and talk about how each participant’s answers may differ (some significantly) Assign as home work, a personal farm or ranch business SWOT analysis. Distribute enough copies of the Analysis Sheet for other members of the family. Strengths - Characteristics of the farm and ranch business that give it an advantage over other farm and ranch businesses Assignment: For next session, complete a SWOT based on your family farm or ranch. Threats – External elements in the environment that could cause trouble for the farm or ranch business Opportunities – External chances to improve the performance (i.e., more profits) in the farm or ranch business environment Weaknesses – (limitations) Characteristics that place the farm or ranch business at a disadvantage relative to other farm and ranch businesses

Risk Profiles YOUNG MATURE ambitious risk conscientious low experience new ideas no time horizon time to recover from mistakes have little to lose MATURE risk conscientious lots of experience established style setting sun on horizon little or no time to recover if losses occur have a lot to lose

The 5 D’s by Generation YOUNG MATURE Death Divorce Disability Disagreement Disaster You can also add, Debt, Depression, Dissolution to the list. Rank- (From 1-5, with 1 being the biggest concern) these risk according to young or mature generations. For example: the younger generation may feel that “death” is the least of their worries, while the mature generation may feel that it is a much higher risk. Or, the mature generation may feel that “divorce” is a low risk area.

Techniques to Manage Risk Avoid Reduce Retain Shift Self Insure

Insurance Liability/peril Life Disability Crop and livestock These next six slides have all good issues to discuss during the planning of a farm or ranch business transition plan. There are some very good suggestions on how to handle most of the dreaded D’s that could arise. The way the generations think of these issues should be part a good communication plan. How they will be dealt with should become provisions in the business agreement that is part of the transition plan. The most common derailment occurs when a death occurs (refer to the farm journal legacy project for an excellent discussion on how one 3 generation family is dealing with the death of the selected 36 year old individual to run the farm). The next issue that many have not planned for is the temporary or permanent disability of a member of the succession team.

Contracts Leases Production agreements Prenuptials Market sales contracts Estate and retirement plans There are some very good suggestions on how to handle most of the dreaded D’s that could arise. The way the generations think of these issues should be part a good communication plan. How they will be dealt with should become provisions in the business agreement that is part of the transition plan. The most common derailment occurs when a death occurs (refer to the farm journal legacy project for an excellent discussion on how one 3 generation family is dealing with the death of the selected 36 year old individual to run the farm). The next issue that many have not planned for is the temporary or permanent disability of a member of the succession team.

Asset Management How property is titled Why it matters There are some very good suggestions on how to handle most of the dreaded D’s that could arise. The way the generations think of these issues should be part a good communication plan. How they will be dealt with should become provisions in the business agreement that is part of the transition plan. The most common derailment occurs when a death occurs (refer to the farm journal legacy project for an excellent discussion on how one 3 generation family is dealing with the death of the selected 36 year old individual to run the farm). The next issue that many have not planned for is the temporary or permanent disability of a member of the succession team.

Communications Between family members/generations Business associates There are some very good suggestions on how to handle most of the dreaded D’s that could arise. The way the generations think of these issues should be part a good communication plan. How they will be dealt with should become provisions in the business agreement that is part of the transition plan. The most common derailment occurs when a death occurs (refer to the farm journal legacy project for an excellent discussion on how one 3 generation family is dealing with the death of the selected 36 year old individual to run the farm). The next issue that many have not planned for is the temporary or permanent disability of a member of the succession team.

Modified Behaviors Business vs. lifestyle Separating business and family life There are some very good suggestions on how to handle most of the dreaded D’s that could arise. The way the generations think of these issues should be part a good communication plan. How they will be dealt with should become provisions in the business agreement that is part of the transition plan. The most common derailment occurs when a death occurs (refer to the farm journal legacy project for an excellent discussion on how one 3 generation family is dealing with the death of the selected 36 year old individual to run the farm). The next issue that many have not planned for is the temporary or permanent disability of a member of the succession team.

Financial Records Balance sheet Cash flow Income statement Emergency cash funds There are some very good suggestions on how to handle most of the dreaded D’s that could arise. The way the generations think of these issues should be part a good communication plan. How they will be dealt with should become provisions in the business agreement that is part of the transition plan. The most common derailment occurs when a death occurs (refer to the farm journal legacy project for an excellent discussion on how one 3 generation family is dealing with the death of the selected 36 year old individual to run the farm). The next issue that many have not planned for is the temporary or permanent disability of a member of the succession team.

Shift Avoid Severity of Impact Retain Self Insure Reduce Frequency of Events Severity of Impact Few Many Low High Avoid Retain Self Insure Reduce Shift Exercise: Have class participants rank the risk discussion on slides 7 thru 12 into severity and frequency. And discuss the methods or ways particular risk should be managed. By filling in the matrix, participants can determine which risk deserve the most attention in the transition plan. . Discuss how each risk can be mitigated.

Fair vs. Equal Issues of fairness One perspective on fair vs. equal Wills Understand how assets are transferred in probate Identify farm or ranch heirs/managers/partners Develop a succession plan Put the succession plan into action Fair vs equal continues to be a discussion in farm and ranch transition programs. While there is not much consensus among educators on solving this dilemma, there are certain themes that recur in most publications, discussions and programs. One perspective on fair vs equal and how it really exist in the parents mind. When children are small, parents generally provide for each child differently, depending on their needs. For example, one child may play a sport that requires special expensive equipment, the other may not; one child may go to private school, the other may excel in public school; or a child may be healthy, the other might require extensive medical care. For most of their lives, parents tend to treat their children unequally, and rarely give it a second thought. IT’S ONLY AT DEATH THAT PARENTS FEEL COMPELLED TO PROVIDE AN EQUAL INHERITANCE TO EACH CHILD, INDEPENDENT OF EACH CHILDS LOT IN LIFE!!! For most parents, the solution lies in dividing up their estate fairly rather than equally. The real solution to this issue is to discuss the issues during goal setting, SWOT analysis and building the transition plan. Remember that making sure heirs remain on good terms with their siblings is a crucial element of every good transition plan. Knowing where the potential land mines are is certainly the beginning of the end to the fair vs equal issue.

Tools to Increase Fairness Life Insurance It’s affordable: life insurance is purchased for off-farm heirs On-farm heirs purchase life insurance on parents’ lives for buying out siblings Partnership, LLC, Corporation On-farm heir controls/manages the operation All siblings share ownership Operating entity owned by on-farm heir and land entity owned by all heirs Look for real solutions: Each of these tools come with a set of challenges to make the farm or ranch a successful business transition. Remember one of the goals is, “making sure heirs remain on good terms with their siblings is a crucial element of every good transition plan.

Tools to Increase Fairness Off-farm heirs understand and agree to inherit less, in order to transition a viable farm or ranch business Shared appreciation agreement If the on-farm heir sells real estate within a specified time, off-farm heirs share in appreciation Real estate divided Long-term leases On-farm heir has first right of refusal if off-farm heirs sell Look for real solutions: Each of these tools come with a set of challenges to make the farm or ranch a successful business transition. Remember one of the goals is, “making sure heirs remain on good terms with their siblings is a crucial element of every good transition plan.

Checking Your Progress At this point can you answer yes to the following questions? Are the parents or older generation ready for a partner? Is the child or non-related younger generation committed to farming? Is the business large enough? Can you live and work together? Are the non-farming children supportive? Page 55 of the manual. Develop and complete the RMA SWOT worksheet exercise. Bring out the simplified “transition planning flowchart” and the wall chart (Margaret's) and discuss where the class is in developing the tools to chart a transition plan.