Farm Business Succession Planning John R. Baker Attorney at Law Beginning Farmer Center Joy Kirkpatrick Outreach Specialist UW Center for Dairy Profitability Photos by USDA NRCS

Participating and Funding Organizations Iowa State University University of Nebraska - Lincoln

Quick Review of the Research International FARMTRANSFERS Succession survey 8 states and 11 countries to date; 16,500 replications Asked producers if they are going to retire, where they are going to live, sources of income in retirement, identified successors, and inheritance preferences

Farmer Retirement & Succession Survey A. If you are retired or plan to retire you will provide neither managerial control nor labor to the farm B.If you are semi-retired or plan to semi-retire you will provide some managerial control and/or labor to the farm C.If you never retire you will maintain full managerial control and provide some labor to the farm

Results Retirement plans Of those retiring – where will they live in retirement? Identified Successor Estate Plans

Farm Business Succession Planning Photos by USDA NRCS

“Entry into farming is a process, not an event.” Dr. Paul Lasley

Farm Business Succession Planning Here What is here? Why is it here? Who is here? Why are they here? What are they doing? Why are they doing it? How is it being done? How well is it being done? Profitable? Increasing wealth? Here and Now There and Then When is “then”? Where is “there”? There What is there? Why is it there? Who is there? Why are they there? What are they doing? Why are they doing it? How is it being done? How well is it being done? Profitable? Increasing wealth?

Farm Business Succession Planning Here and Now There and Then When is “then”? Where is “there”? Now What is happening: In our industry? On our Farm? Then What is happening: In our industry? On our Farm?

KEY QUESTIONS No Successor Farm/Ranch Income may leave the area Unintended Consequences: o Community o Businesses o Churches o Schools

THE FARM Money Management SUCCESSION PLAN BUSINESS SUCCESSOR HEIRS Owner’s priority Continuation of family ownership of farmland Owner’s priority Continuation of farm family business Assets ESTATE PLAN

VALUES What is important to me? What do I hold dear? VISION What does the future look like? MISSION Why are we here? What do we believe in? GOALS What do we want to do? What do we want to be? OBJECTIVES How will we measure activity? How will we know when we have arrived? STRATEGIES How are we going to get there? TACTICS What do we need to carry out our strategies? Who is responsible for the necessary activities?

Owner Generation Values – What is important to me? Vision – What does my future look like? Mission – Why am I here? Goals – What do I want to do or be? Objectives – How will I measure activity? Strategies – What is my plan? Tactics – How do I implement the strategies? Self-Assessment Skills Abilities Essential Planning Skills Communicating Decision making Conflict resolution Successor Generation Values – What is important to me? Vision – What does my future look like? Mission - Why am I here? Goals – What do I want to do or be? Objectives – How will I measure activity? Strategies – What is my plan? Tactics – How do I implement the strategies? Self-Assessment Skills Abilities Essential Planning Skills Communicating Decision making Conflict resolution Business Succession Planning Business Resource inventory and analysis Physical – Short, intermediate and long term property. Financial – Income statement, balance sheet, financial ratios. Personnel – Human assets. Essential business principles Values - What is important to our business? Vision - What does the future look like? Mission - Why are we here? Goals - What do we want to do or be? Objectives - How will we measure activity? Strategies - What is our plan? Tactics - How do we implement the strategies? Business Planning Opportunities Threats Strengths Weaknesses One year Two years Five Years Ten Years Retirement Planning Timing Residence Income Source Household Budget Recreational Needs Health Care Needs Long Term Needs Transfer Planning Income Amount Source Method Household Budget Management Assets Estate Planning Equal vs. Equitable Business Assets Personal Assets Consistency Flexibility Legal Documents Liquidity Needs Tax Consequence Planning should be done simultaneously because all planning areas influence one another.

Photos by USDA NRCS Communications

Circle the 8 descriptors that represent work activities that most “turn you on.” Underline 2-4 descriptors that most “turn you off.” Counseling People Analyzing Data Having Variety Paperwork Tasks Being Challenged Making with Numbers Designing Excitement Comm. Aspects Teaching/Training An ordered environ. Attending to detail Expressing Ideas Coaching Selling Ideas Making things work Seeing the end from beginning Building Things Building relationships Bringing about change Solving Tough Problems Working With People Listening and Talking Preserving Status Quo Developing New Things Explaining Things Working Solo Getting Groups to Work Well Together Stabilizing Opportunity to Experiment Accomplishing Being Part of a Team Planning things out Having A lot of Space Analyzing and Diagnosing Getting Things Done on Time Logical Processing Playing Around Persuading People Being in Control Taking Risks Providing Vision Structured Tasks Helping People Expressive Writing Inventing Solutions Applying Formulas Establishing Order Putting things together Clarifying Issues Providing Support Administrating

Dominance Preference Interests Competencies Way We Work

Creative “turn on” work indicator: Circle the 8 descriptors that represent work activities that most “turn you on” Underline those that most “turn you off”. © 1997 Ned Herrmann Group

Differences in Processing Modes A “Blue”B “Green”C ‘”Red”D “Yellow” Descriptors Logical Factual Rational Critical Analytical Quantitative Authoritarian Mathematical Technical reader Data collector Conservative Controlled Sequential Articulate Dominant Detailed Musical Spiritual Symbolic Talkative Emotional Intuitive (regarding people) reader (personal) Intuitive (regarding solutions) Simultaneous Imaginative Synthesizer Holistic Artistic spatial Skills Problem Solving Analytical Statistical Technical Scientific Financial Planning Regulatory Supervisory Administrative Organization Implementation Expressing ideas Interpersonal Writing (correspondence) Teaching Training Integrative Visualizing Causing Change Conceptualizing Generating Ideas Trusting Intuition Typical Phrases Used “Tools” “Hardware” “Key Point” “Knowing the bottom line” “Take it Apart” “Break it Down” “Critical Analysis” “Establishing Habits” Always done it this way” “Law and Order” “Self Discipline” “By the Book” “Play it Safe” “Sequence” “Team Work” “The Family” “Interactive” “Participatory” “Human Values” “Personal Growth” “Human Resources” “Team Development” “Play with an idea” “The Big Picture” “Broad-Based” “Synergistic” “Cutting Edge” “Conceptual Blockbusting” “Innovative”

HOW THE BRAIN COMMUNICATES A “BLUE” Uses facts to illustrate points Very matter of fact Expresses emotions abstractly Appears to display little or no emotion regardless of the situation D “YELLOW” Ask questions that lead to other questions Speaks in phrases Stops in mid sentence thinking others obviously know Very abstract in speaking – uses metaphors and musical words Asks questions that have answers Speaks in sentences and paragraphs Completes sentences and paragraphs Very concrete in speaking B “GREEN” Face is animated- eyes flash, etc. Uses expansive non-verbal gestures Uses stories to illustrate points Talks out loud or to self to learn C “RED” © 1997 Ned Herrmann Group

FACTS FEELINGS PRECEPTIONS

Communication Blockers Directing/Ordering “Stop complaining…” “Try harder…” Threatening/Warning “You had better…” “If you don’t……” Moralizing/Preaching “You ought to…” “Nice girls don’t…” Lecturing/Arguing “The fact is…” “Yes, but this is the way…” Advice Giving “Why don’t you …” “If you would do this…” Criticizing/Blaming “You’re not thinking straight..” “You’re acting like an idiot…” “You should have…” Diagnosing/Counseling “You don’t really mean that…” “What you need is….” Cross-examining, Prying “When are you going to …..?” “Why did you do that?” Denying/reassuring/withdrawing “Don’t worry about it…” “It’s not that big of a deal…” “Lets not talk about it now…”

Communication Openers 1.Be attentive. Look, listen, track 1.Invite responses. 1.Summarize. 1.Ask and Clarify.

CAN’T WE ALL JUST GET ALONG? DEALING WITH CONFLICT IN A FARM BUSINESS & FARM BUSINESS MEETINGS – A FACILITATED MEETING MODEL

DEALING WITH CONFLICT IN A FARM BUSINESS TRANSITON THE NATURE OF CONFLICT Normal part of life Few people are comfortable with conflict Resolution becomes more difficult when conflict is ignored Value conflicts are common Conflict is a difference between people – it can be real or perceived

RECOGNIZE CONFLICT WHEN Communication is fractured Parties are avoiding each other Emotions are heightened Parties are at impasse and cannot agree

SOURCES OF CONFLICT IN A FARM BUSINESS TRANSITION WHAT HAVE YOU SEEN?

How will we deal with the conflicts that occur? Conflicts in the workplace Conflicts at the meetings Family conflicts Unresolved conflict Values conflicts

Conflicts are problems Problems have solutions Solution to a conflict has to be negotiated Need to know how to negotiate

John R. Baker Attorney at Law VALUES

What is important to me? What do I hold dear? VISION What does the future look like? MISSION Why are we here? What do we believe in? GOALS What do we want to do? What do we want to be? OBJECTIVES How will we measure our activity? How will we know when we have arrived? STRATEGIES How are we going to get there? TACTICS What do we need to carry out our strategies? Who is responsible for the necessary activities?

FACTORS THAT INFLUENCE OUR VALUE SYSTEM FRIENDS FAMILY GOVERNMENT MEDIA CHURCH TEXTBOOKS RELIGIOUS BELIEFS REFERENCE MATERIAL SCHOOL SYSTEM EDUCATION TELEVISION VALUES

VALUES QUESTIONS How are your values perceived? What do you like or dislike in other people? Who are your heroes? Of whom are you proud? What do you consider your failures? What do you consider your successes? What are your fears? Product you buy/not buy because of advertising? Where do you purchase? What do you hold sacred? What is important in your business? How do you measure growth? To whom are you loyal? Who is loyal to you? Factors considered when making decisions?

Creating the Vision

What’s in your future? Five Years from now --- Ten Years from now --- Where will you live? What will you do? How are your living expenses paid? What does the business do? Who is managing it? How much ownership do you have in it?

A Shared Vision To be useful, a Vision must be mutual o If one or more decision-makers does not buy into the vision, this substantially reduces the likelihood that anyone will achieve it As a family, see where your visions overlap o Take note of where your visions conflict Write down a “statement” that describes a vision you all share

Wants, Needs, Expectation, Fears Photos by USDA NRCS

What do we want to have happen when our successor returns to the farm family business? What do we need to have happen when our successor returns to the farm family business? What do we fear will happen when our successor returns to the family farm What do we expect to have happen when our successor returns to the farm family business?

Project details 2006 RME grant – IFTN with help from states who have Ag Link or Returning to the Farm workshops Included a train the trainer in Des Moines, IA Originally had 6 participating states. Five states completed their sessions Over 330 people participated in the four states, representing 125 farm/ranch operations

Project Results Approximately 100 of the operations represented: –Developed a family meeting agenda –Discussed succession plans –Established goals of the transfer –Developed action steps to continue the process One year follow up evaluation –75 operations have transferred at least one aspect of management or some assets to the next generation

Questions? Comments? John R. Baker Attorney at Law Beginning Farmer Center Joy Kirkpatrick Outreach Specialist UW Center for Dairy Profitability