Returning To The Farm Lessons From 20 Years Of Seminars John R. Baker Attorney at Law Beginning Farmer Center [email protected] 1.877.232.1999 Photos.

Returning To The FarmLessons From 20 Years Of Seminars

John R. BakerAttorney at LawBeginning Farmer [email protected]

Photos by USDA NRCS

VALUESWhat is important to me?

VISIONWhat do I intended for my future?

MISSIONHow will this farm business create that future?

GOALSWhat do I need to do to insure the farm will create that future?

OBJECTIVESHow will I measure progress in accomplishing the goals?

STRATEGIESWhat is my plan to reach the goals?

TACTICSWhen and how must the actions to implement the strategies be

done?

THE FARM

BUSINESSSUCCESSOR

Owner’s priorityContinuation of family ownership of farmland

Owner’s priorityContinuation of farm family business

Assets Money Management

ESTATE PLAN

HEIRS RETIREMENT

SUCCESSION PLAN

Two Views

• The first was developed by me.

• The second was Developed by Joy Kirkpatrick, Center for Dairy Profitability, University of Wisconsin.

Owner GenerationValues – 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-AssessmentSkills Abilities

Essential Planning SkillsCommunicatingDecision making Conflict resolution

Successor GenerationValues – 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-AssessmentSkills Abilities

Essential Planning SkillsCommunicatingDecision making Conflict resolution

Business Succession Planning

BusinessResource inventory and analysis

Physical – Short, intermediate and long term property.Financial – Income statement, balance sheet, financial ratios.Personnel – Human assets.

Essential business principlesValues - 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 PlanningOpportunitiesThreatsStrengthsWeaknessesOne yearTwo yearsFive Years Ten Years

Retirement PlanningTimingResidenceIncome SourceHousehold BudgetRecreational NeedsHealth Care NeedsLong Term Needs

Transfer PlanningIncome Amount Source MethodHousehold BudgetManagementAssets

Estate PlanningEqual vs. EquitableBusiness AssetsPersonal AssetsConsistency FlexibilityLegal DocumentsLiquidity NeedsTax Consequence

Planning should be done simultaneously because all planning areas influence one

another.

6

Returning To The FarmA 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?

Subjects

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

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?

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.

Each Family Member’s

• Wants

• Needs

• Expectations

• Fears

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

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.

Structure

• The Structure Of A Family Does Not ChangeThe Family Tree.

• The Structure Of A Business Must ChangeThe Organization Chart.

Succession Planning Is The Planned Change Of The Organization Chart.

Two Different SystemsFamily 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

Two Different SystemsThe FAMILY system

Attributes of a successful familyLovingLoyalAffectionateSupportiveEmpatheticUnderstandingEnduringCommunicative

Two Different SystemsThe BUSINESS system

Attributes of a successful businessEfficientProfitableGoal DirectedEffectiveAggressiveEvaluativeInnovativeProficient

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.

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

Succession

• Identify a successor.• Inform the successor.• Transfer:

– Money– Management– Assets

•Inform the non business heirs.

Farm Business Succession Planning

HereWhat 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”?

ThereWhat 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 PlanningHere and Now There and Then When is “then”?

Where is “there”?

NowWhat is happening: In our industry? On our Farm?In our lives?In our family?

ThenWhat is happening: In our industry? On our Farm?In our lives?In our Family

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.

Why Don’t People PlanPeople 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

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

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.

MethodologyList 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

Caption graph paper with the time periods

needed to complete the plan

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

• 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.

Critical Path Method Chart

Weeks

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Sequential ------------------------ Parallel --------------------------

The Critical PathThe Critical Path

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

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

Presented by:

John R. Baker, Attorney at Law

Beginning Farmer Centerwww.extension.iastate.edu/bfc/

877.BFC.1999

Providing such programs as Farm On, Ag Link Seminar, educational materials, individual consultation, International Farm Transition

Network