1. Returning To The Farm Lessons From 20 Years Of Seminars John R. Baker Attorney at Law Beginning Farmer Center jrbaker@iastate.edu 1.877.232.1999 Photos by USDA NRCS

2. VALUES What is important to me? VISION What do I intended for my future? MISSION How will this farm business create that future? GOALS What do I need to do to insure the farm will create that future? OBJECTIVES How will I measure progress in accomplishing the goals? STRATEGIES What is my plan to reach the goals? TACTICS When and how must the actions to implement the strategies be done?

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

4. Two Views The first was developed by me. The second was Developed by Joy Kirkpatrick, Center for Dairy Profitability, University of Wisconsin.

5. 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.

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7. Returning To The Farm A four day seminar for farm family business owners, operators and successors. Attendance by the family is mandatory. The Seminar answers three questions: Where are we now? Where do we want to be? How are we going to get there?

8. Subjects The subject for a farm family business succession planning seminar are: –Farm –Family –Business –Succession –Planning

9. Farm History of the farm. Ownership: Who owns what and how do they own it? What is the value of the farm assets? Who is going to inherit the land and how will they own it? Who will own the land and who will operate the farm business?

10. Family Communication: Do they talk about the future of the farm family business and what do they talk about. Understanding the differences between family and business. Expectation and assumptions of the owners, operators, successors and heirs.

11. Each Family Member’s Wants Needs Expectations Fears

12. The Family Business Identify who will own the business assets. Identify who will manage the business. The heirs want participation in: –Ownership –Management –Income Allocation of profits and losses

13. The Family Business A family business conflates the family system and the business system. The more closely family members work together the more difficult the conversation about the business becomes. Expectation and assumptions are made and remain unspoken.

14. Structure The Structure Of A Family Does Not Change The Family Tree. The Structure Of A Business Must Change The Organization Chart.  Succession Planning Is The Planned Change Of The Organization Chart.

15. Two Different Systems  Family is inward looking  Family avoids risk  Family focuses on emotions  Family seeks stability  Family does not count cost  Subconscious decisions Business is outward looking Business seeks risk Business focuses on rationality Business seeks change Business tracks cost Conscious decisions

16. Two Different Systems The FAMILY system Attributes of a successful family Loving Loyal Affectionate Supportive Empathetic Understanding Enduring Communicative

17. Two Different Systems The BUSINESS system Attributes of a successful business Efficient Profitable Goal Directed Effective Aggressive Evaluative Innovative Proficient

18. Which System Is Appropriate Identify the appropriate system in which the decision must be made. Use language appropriate to the identified system. Use the appropriate criteria for the decision. Consider the impact of the decision on the business and the family. Select the decision that has the most positive impact on the business and the family.

19. Business  Resource inventory and analysis  Physical – Short, intermediate and long term property.  Financial – Income statement, balance sheet, financial ratios.  Personnel – Human assets.  Strengths  Weaknesses  Opportunities  Threats

20. Succession Identify a successor. Inform the successor. Transfer: –Money –Management –Assets Inform the non business heirs.

21. 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?

22. 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? In our lives? In our family? Then What is happening: In our industry? On our Farm? In our lives? In our Family

23. Planning “Plans are nothing. Planning is everything.” General Dwight Eisenhower Knowing what to plan is important but can only be accomplished when how to plan is known and used.

24. Why Don’t People Plan People Don’t Plan Because – They Believe Its Too Complicated They Don’t Like To Plan They Must Face Their Own Mortality They Want To Avoid Family Conflict

25. The Critical Path Identifies necessary resources Analyzes a complex project Calculates the minimum time for completion Prioritizes activities Effective schedules and monitors progress Focuses on the essential activities Provides a graphic view of the plan

26. Activities Sequential activities are dependent on other activities being first completed. –Sequential Activities must be completed in an ordered sequence. –Each activity in the sequence must be completed, or near completion, prior to the start of the next activity in the sequence. Parallel activities are not dependent on the completion of a previous activity or activities.

27. Methodology List all activities in plan List the earliest practical start date; estimate length of time to completion; if the activity is parallel or sequential; how to measure the activity; who is responsible for the activity; and how and to whom the activity will be reported. The context of the activity determines if it is parallel or sequential. Activity __________________________________________________________ Start week __________________________ Number of days to completion ________________________________________ Sequential & dependent upon ________________________________________ Parallel _________________ How will the activity be measured? ____________________________________ Who is responsible for the activity? ____________________________________ How and to whom with progress be reported?____________________________ List all the activities need to complete the plan

28. Caption graph paper with the time periods needed to complete the plan

29. Copy activities in the appropriate time period Begin with the activities with the earliest start dates Show the activities as arrows the end with a box Show the time to complete the activity above each arrow Show whether the activity is sequential or parallel Schedule sequential activities in the order to be performed Parallel activities must not conflict with sequential activities Allow for unexpected

30. The Critical Path is the list of sequential activities leading to the completion of the plan. Any delay of in the start or completion of an activity on the critical path will delay the completion of the whole plan.

31. Critical Path Method Chart Weeks 123456789101112131415161718 Sequential ------------------------Parallel -------------------------- The Critical Path

32. A Fifteen Year Plan Five years as a junior partner Five years as an equal partner Five years as a senior partner Retirement at fifteen years

33. RETURNING TO THE FARM Friday 8:30am – 5:00pm Welcome What Are We Trying To Find Out? – Overview and Introduction What Did You Say? – Communications Wants, Needs, Expectations, Fears LUNCH PROVIDED Retirement Planning – Discussion and planning Can’t We All Just Get Along? – Family Business Meetings and Resolving Conflicts Saturday 8:30 – 3:00 The Most Important Things In My Life Are… – Identifying your values Planning with intent – Visioning the Future & Defining the Mission LUNCH PROVIDED Setting the Guideposts – Why and How to Set Your Goals Using financial Statements Friday 8:30 – 5:00 How are you doing? – Reviewing your progress Agricultural Outlook Strategic Business Planning LUNCH PROVIDED Transfer Planning – Transferring Money, Management and Assets Estate Planning As A Part of the Succession Plan Saturday 8:30 – 3:00 Who Can Help? – Available resources Owner and Successor Panel – Success Stories From Producers LUNCH PROVIDED The Critical Path Method – Managing The Planning Process

34. Presented by: John R. Baker, Attorney at Law Beginning Farmer Center www.extension.iastate.edu/bfc/ 877.BFC.1999 Providing such programs as Farm On, Ag Link Seminar, educational materials, individual consultation, International Farm Transition Network