2. Succession Planning: How do I Train the Next General Manager?

3. What is succession planning? …it is a PROCESS that ensures the continuation of a business through the generations. “The final test of greatness in a CEO is how well he chooses a successor and whether he can step aside and let his successor run the company.” Peter Drucker, management expert

4. Did you know... 90% of U.S. businesses are categorized as family owned. 7 of America’s 8 oldest family businesses are farms. While 78% intend to pass the business on to children, only 34% create a succession plan (for 25% a will is the only element of that plan). 70% of first generation businesses fail to survive into the second generation. 15% survive into third generation. 1% survive into the fourth generation. Source: Small Business Administration

6. Steps in Succession Planning Process 1.Understand what succession is 2.Discover expectations 3.Examine options 4.Create a plan 5.Check with experts 6.Finalize the plan 7.Implement the plan

7. Step 1. What Succession Is and Is Not Succession is: A process About family, people and relationships About ownership, management and estate About what is fair Driven by the family values, wants and concerns Succession is not: An event One person’s problem About minimizing taxes About equity Driven by technical issues that are handled by lawyers, accountants, etc.

8. Step 2: Discovering Expectations Should involve all family member (whether in the business or not) Assumptions at any stage about other’s wants or expectations should not be made Say no to secrecy!

9. PerryRose Perry Jr. Kay Say NO to Secrecy!

10. Step 3: Examine Options Key Questions: – What role, if any, will family members play in the succession plan? – What can we do to treat all offspring fairly? – How can I prepare for either a different role in the business or for retirement? – How will the transfer of ownership be handled? – How will the successor(s) be trained? – How will the change in roles be communicated to stakeholders?

11. Bob Joe Friend Part-time farmer Key employee Carl Farm Owner Jan Physician Family First versus Business First

12. Robert Fair versus Equal

13. Step 4: Create a Succession Plan Plan for transferring management Plan for transferring property Contingency plan for managing disruptive events

14. Choosing the Successor What specific attributes would you look for in a successor? – Education – Experience – Personal characteristics – Skills required – Job responsibilities

15. Grooming the Successor How do you provide opportunities to make decisions, take risks, and develop management skills? – Initial evaluation – Management training – Career growth – Regular feedback – Timetable (allow 5 years to 15 years)

16. Charles for Charles Dad for Charles Evaluation of Farm Management Skills

17. Step 5: Check with Experts Use them to comment on your thinking, not to do your thinking for you Should be visited only after you’ve thought about the process

18. Step 6: Finalize the Plan Write it down!

19. Step 7: Implement Plan How to announce the plan? Develop program with action plans Set target dates Schedule follow up/review of program Keep everyone informed Review the plan periodically

20. Typical Parent-Child Business Arrangements On Family Farms Spin-off model Landlord-tenant model The “super-firm” model

21. Succession Planning Critical Issues: Transfer of management Transfer of assets Anticipating disruptive events

23. Key Questions About Involvement In the Family Business Who are the participants? What role(s) will each family member play in the business? Employee concerns include income and benefits, financial security, recognition Manager concerns include responsibility and authority, career growth, recognition Owner financial growth, risk versus reward, rate of return, cash

24. Think About Separating The Roles No single participant need wear all three hats as manager, employee, and owner One advantage of business entities (super- firms) is they allow us to separate ownership and management Provides opportunity to keep non-farm heirs involved as investors

25. Fundamental Tasks When Planning to Accommodate Off-Farm Heirs Assure a degree of marketability to investments of off-farm heirs, minority interest holders Provide assurances about current or future returns on their investments Provide for legitimate forms of involvement in family/farm governance

26. Multiple Entities (Advantage: Flexibility in Numbers) May be easier to deal equitably with on-farm and off-farm heirs Using a new operating entity reduces the investment needed by on-farm heirs to gain control of the operating entity

27. Family Governance Structures: Family Council Includes all adult parties in interest to business or family assets Deals with questions of the family’s role in the business and the welfare of family members Purpose is to give all stakeholders a legitimate voice in the family business

28. Strategic Business Planning for Commercial Producers