June 11, 2018
Featured Guest Writer: Dr. David Kohl
Recently, I was in the upper Midwest conducting lender-sponsored producer seminars. After one of the meetings, a farm family stayed to discuss farm transition with some of the lenders. They kindly invited me to join, and their first question was to ask for ways to remain a family cow-and-calf operation, instead of a large corporate family business. They asked, “Should we diversify, add value products or grow the business?” By the way, the family was in its fifth generation of management, with a sixth generation preparing to take over the reins.
One good approach to this situation is to reverse the order of examining opportunities. In other words, take an inside-out approach instead of one that is outside-in. First, this family needs to examine family goals and values. Specifically, I instructed each member to write down the top three business, family and personal goals for both the short and long terms (one year, and three to five years separately). This exercise was particularly helpful with this family as one member was very vocal, which seemed to be observed by the non-verbal communication of the other family members present.
Next, keeping with the inside-out approach, the family needed to examine and analyze the financial direction of the business over the past three to five years. We laid out major questions for them to answer including profitability direction, balance sheet values and the amount of overall debt. The answers to these questions are critical to moving forward.
This approach also includes a talent assessment. That is, who does what? What are the passions and interests of each individual and do they fit the needs of the family business? The interest, availability and training of future generations must also be considered. Another important question is spousal involvement. Will spouses contribute, and if so, in what ways? Actually, the whole idea of job descriptions, regardless of business size, can be valuable in determining everyone’s roles and responsibilities. This also helps minimize overlap in the systems for increased efficiency. Developing a management system with specified roles is a good idea even for a smaller business where one or two individuals do it all.
Next, this family needed to think through its transition plans (exit and entrance). What will the senior generation require for healthcare and other living costs? And what will be needed to establish the younger generation as viable?
With this insight, the family can explore opportunities and scenarios that align with aspects identified in the internal analysis. When families neglect the inside-out process, individual members are often left fretting about the direction of the business, while others remain in the Ball of Confusion, like the 1970’s song by the Temptations.
Finally, this very nice farm and ranch family is, like many, experiencing the growing pains of family business transition. The members were loving and wanted the best for the family as well as the business legacy, which certainly aided the process. I commend them and all family businesses for tackling their future in such a practical, professional and open way.
Please send your remarks to BMC@northwestfcs.com. I would like to know what you are thinking.
Dr. Kohl is Professor Emeritus of Agricultural Finance and Small Business Management and Entrepreneurship in the Department of Agricultural and Applied Economics at Virginia Polytechnic Institute and State University. Dr. Kohl has traveled over 8 million miles throughout his professional career and has conducted more than 6,000 workshops and seminars for agricultural groups such as bankers, Farm Credit, FSA, and regulators, as well as producer and agribusiness groups. He has published four books and over 1,300 articles on financial and business-related topics in journals, extension, and other popular publications.
© Northwest Farm Credit Services 2018