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Planning with the Next Generation in Mind—
A Whole Farm Approach to Succession Planning

Ann Adams, Director, Community Services at Holistic Management International (HMI)

Don and Bev Campbell and their extended family with whom they ranch

A Whole Farm Approach
to Succession Planning
  1. Develop your Management Inventory and
    Holistic Goal
  2. Create the necessary systems and processes to grow your business
  3. Identify and engage the next generation for your
    business and land
  4. Identify the necessary organizations and
    professionals for your transition
  5. Use these tools and resources as you make your decisions and plans
  6. Monitor results toward your Holistic Goal
  7. Adapt and respond to changing circumstances
  8. Enjoy the rewards of your planning

Added October 6, 2013. An estimated 70% of farms in the U.S. will change hands in the next 20 years with over 500,000 farmers retiring during that time period. If you are involved in one of those farms or ranches you might be interested in learning how Holistic Management has been used as a whole farm planning approach for succession and estate transfer planning.

Many families have found the tool of a Holistic Goal, and testing decisions and creating plans with that goal in mind, to be the foundation for their succession plan, and that foundation has been tremendously helpful. As most estate and succession planners will tell you, having the important conversations and getting the right professionals involved at the right time is the key to a successful transition. After all, a successful succession plan is one that results in a successful transition for all parties for many years, not just after the older generation has passed on. For that reason, a succession plan is well in place and skills and resources have been developed before the final transfer happens.

Depending on the size and complexity of your operation, you may have a number of professionals involved in your succession plan including whole farm planning facilitators, estate planners, financial planners, attorneys, accountants, and conservation organizations. As I have talked with numerous Holistic Management practitioners over the years, one common theme came up—they had been setting the stage for a successful succession plan for years before they actually created that plan—by having a holistic goal and using it to create a successful family business.

Most Holistic Management practitioners operate a family business. They began practicing Holistic Management because they liked the idea of incorporating a value-centered, decision-making and planning process that focused on the triple bottom line. They also found, even if they were not initially aware, that a Holistic Goal creates ownership across the family and is a valuable tool to improve family communication and relationships. The goal setting helped begin the conversation and clarified the critical family values. Using the Holistic Goal as part of the ongoing business management meant that key relationships and skills were developed over the years. In fact, by its definition, Holistic Management/holism helps people to focus on creating more rewarding, symbiotic relationships. That focus has resulted in strong family teams that are managing their businesses with a resilience that will help any business succession (planned or otherwise) result in more favorable outcomes for that family.

Road Map for Succession

The first steps in Holistic Management are to create a management inventory and a Holistic Goal that articulates the quality of life that those decision makers desire including the systems and processes necessary to create that quality of life. The Holistic Goal also helps decision makers articulate the big picture of what they want that business to look like far into the future. So, in essence, you have a big picture document that provides not only the vision and the culture of that business, but also outlines the necessary plans, processes, and systems to get there. It also encompasses the present as well as the future; encouraging the conversation to be about both the present and making the most of it to get the future you (the decision makers) desire.

It may take a little time, but I’ve found that when families have articulated their Holistic Goal and have ownership from within the management team, then people begin to also take ownership in how to move the business forward by putting those systems and processes in place. Consistently I have seen families setting and holding weekly or monthly meetings that deal with the issues around roles and responsibilities, plans, implementation of those plans, financial reports, testing key decisions, developing strategic or business plans, and a host of other issues.

Key Components of Farm/Ranch Transfer

  1. Goal Setting &
    Communication
  2. Business Plan
  3. Land Use
  4. Retirement
  5. Estate Plan
  6. Asset Transfer
  7. Management Transfer

As noted by Land for Good, an organization that helps people step through farm transfers, there are 7 key components to a Farm/Ranch Transfer and people sometimes confuse an estate plan with a succession plan. Some parts you may be able to complete with little help, and other parts may require significant support by professionals.

The “soft” issues around communication and feelings end up being the hard issues to discuss, and if not discussed can result in greater conflict down the road, which often means wasted resources and destroyed families. Those families that have taken the time to sit down and develop a team approach to a succession plan have been successful because they put goal setting and communication in the forefront which then improves their ability to develop their business, land use, retirement, estate, asset transfer, and management transfer plans as part of a comprehensive succession plan. It is within this context that families begin to more effectively develop their social, financial, and biological portfolios as they address each of the key components of a Farm/Ranch Transfer.

Social Portfolio

Many business owners understand the concept of a financial portfolio and a business plan that will articulate that financial picture in order to attract investors. But a whole farm plan really is about building your social and biological portfolios as well. By doing so, that family business becomes more resilient and develops further assets for the inevitable transfer that will happen. When considering the idea of a social portfolio for a succession plan, it is just as important to consider what the older generation is going to do and what their roles and responsibilities will be as those of the younger generation (think retirement and management transfer plans). Without clear ideas of who is responsible for what and what might be meaningful and enjoyable activities for those with more free time, then the status quo can bog down any planned changes. For example, the older generation may start a B&B or some other less physically demanding role to keep them engaged in the farm but not in the business of the cow/calf operation or dairy that they used to oversee and is now being overseen by the younger generation.

One of the most challenging outcomes for today’s agricultural businesses is getting the next generation to be able to make a living on the family land. In the past, family businesses were likely to just pass to the next generation. Such transition was assumed. Today, many farmers and ranchers don’t have offspring that want to farm or ranch or there isn’t the economic means to have both generations make a living off the land.

Luckily, a Holistic Goal helps the decision makers identify a quality of life they want and encourages the tool of human creativity to help develop a plan or action that will result in the desired outcome for all those involved. For example, Kress Simpson, an organic dairy producer and owner of KTS Farm in Mansfield, Pennsylvania, used Holistic Management to identify opportunities to improve his quality of life. He used seasonal dairying as a production strategy to give him a break from full-time dairying and then again to determine how he could afford an employee. He later used it to help him transition the dairy business to that employee, Mike Geiser. That transition was made easier because Kress had been using the HMI Holistic Grazing Planning Chart, which helped Mike understand and continue to implement the grazing strategies and system plan, which contributed to a successful management transition at KTS Farm.

Financial Portfolio

Likewise, Kress had to determine the appropriate structure for transitioning the business to Mike. He needed a financial portfolio that was resilient enough to afford both families the opportunity for this transition. Using mineral dollars from gas leases, Kress invested in the transition. Kress will continue to mentor Mike and he gave him the pick of his dairy herd to buy and a 5-year lease on the land and equipment with an option to re-lease. Kress’ management focus will be on growing more feed for the herd, and Mike will purchase the feed. Likewise, Kress and his family will continue to live on the farm. With Holistic Management, Kress has the equity to sell the cattle to Mike, offer him the lease, and invest in the infrastructure of a milking parlor that will allow Mike to manage the herd without Kress.

To make his succession plan work, Kress needed a successful business, clarity about land use and management roles, as well as determining which assets to transfer to Mike. Kress and Tammy have children to consider; the asset transfer to them will take place as part of their estate planning.

Biological Portfolio

While financial planning and increasing profit off the current asset base through additional value-added enterprises has been an important piece in these families’ abilities to create more opportunities for the next generation to be on the farm or ranch, increasing biological capital has also been a critical component as well. In this way, these families have been building their biological portfolio as well. Many Holistic Management practitioners have been able to double or quadruple the carrying capacity of their land by investing in the land through improved infrastructure and management to feed the soil rather than constantly taking everything off to cash flow the business. Through effective financial management, producers are able to maximize profitability of their businesses with the idea of investing back into the business and resource base so that the biological capital continues to grow and support multiple generations.

Gabe Brown, from Bismarck, North Dakota, is an example of this investment in biological capital. He has spent the last 20 years focused on increasing the organic matter of his soil. He and his wife, Shelly, purchased their 5,400-acre farm from Shelly’s family and the average organic matter was 1.7-1.9%. After years of experimenting with no-till, polyseeded cover cropping, with livestock treatment to improve the soils, they have built the organic matter up to 5% in some fields and are working to get them up to 6-7%. This increased organic matter has translated into increased production and profit as well as greater resilience in the system when dealing with droughts and floods.

The Right Structures

Gabe and Shelly have worked to create the right management and asset transfer structure to turn the ranch over to their son, Paul. “We knew Paul wanted to come back and ranch,” says Gabe. “We sat down with him and his sister. We told them that Paul gets to work into the operation and we made different outcomes for his sister. When Paul came back from school, we wrote up a 20-year plan so that 5% of the ranch is turned over each year to him. I had seen way too many instances where parents wait until they are ready for retirement before making transition plans.”

Again, the right structure and process of asset transfer really can’t be done effectively without the important conversations up front and the ongoing mentoring and family engagement through a decision making process that provides the right communication structure to help make those conversations constructive. “There is no better feeling than working with one of your children,” says Gabe. “We look upon it as blessing and do what we can to make it work. We also told him that any new enterprises he wanted to start up, he’d get 100% of the income from them. By doing this he learns financial planning and decision making. Paul took Holistic Management training so he is well versed in these processes. We are challenging him to push himself and think outside the box.”

Creating Win-Win Outcomes

George and Elaine Work, from San Miguel, California, spent quite a bit of time determining the roles and changes in responsibility that were the result of transitioning the Work Ranch to their son, Ben. “We still have the home place, about 1,000 acres,” says George. “My son and his family have been running the ranch for several years and we’ve been trying to get things figured out on how to get it transferred to them. We finally made this transition, and now we just work at trying to keep peace in the family. In most families, once Mom or Dad or both are gone, the family comes apart and it’s difficult to continue on with the ranch. There again, the key is communication. The thing many parents don’t do, regarding the issue of estate planning, is look at whether it needs to be fair or needs to be equal. These are completely different things.”

These are the kinds of conversations that can only be had when all the necessary parties can participate. There are many different processes for finding out who is attached to what, but many people are afraid of stirring up a hornet’s next. The problem is the hornet’s nest will be stirred at some point and it’s less likely to be an issue of there is some leadership by the parents in how things are being divvied up and how the strength of the family relationships are the most critical. If parents or owners don’t feel competent to provide that leadership themselves, then they can delegate that role to an outside professional.

The new pastured poultry enterprise is an enterprise that
Paul Brown started when he came back to the ranch.

Succession as Opportunity

Succession planning is an opportunity for families to develop the resilience for the family and the business. Many people may shy away from this type of planning, fearing the changes that may occur or the conversations that arise and subsequent feelings. But resilience is the capacity of a system to absorb change while still maintaining its basic structure or function. Ignoring or resisting the element of change and surprise increases risks and vulnerabilities. So, if you resist change, you are decreasing your family’s resilience.

Succession planning begins with the development of your Holistic Goal and continues as you use that guiding document to make your annual and strategic plans and your day to day decisions about how you engage with other decision makers and your resource base. It is in those decisions and plans that clarity will arise for you in your next steps toward greater levels of transfer. Likewise, your financial and strategic plans, land plans, and grazing plans, which have been developed and implemented by your management team over many years, will have increased your team communication so that there won’t be so much “devil” in the details of major transitions. In this way, whole farm planning helps you increase your chances of keeping your family business whole.

Don Campbell, a Holistic Management Certified Educator and rancher from Meadow Lake, Saskatchewan, has seen the results of practicing Holistic Management. That practice not only lead to a successful succession plan where his sons take the lead on the management of the cattle operation, but also to a wonderful quality of life. “I had a failed inter-generational transfer with my 2 brothers in 1972,” says Don. “I am convinced that if we had known about Holistic Management at that time the results would have been different. I have had a most successful inter generational transfer from me and Bev to our sons and their spouses. This would not have happened without Holistic Management. We wouldn't have had the financial or people skills to make it all work. I enjoy the fruits of that transfer daily. Working with people that I love, doing the work I like, having the time to consult and spread Holistic Management. I can't imagine my life being any better.”

Ann Adams is a Holistic Management Certified Educator and Director of Community Services at Holistic Management International (HMI). She led the farm tour and educational workshops at KTS Farm and presented Planning Your Farm’s Future at the 2013 NODPA Field Days. To learn more about Holistic Management, please go to www.holisticmanagement.org

 

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