In our Q+A, Cressman talks about some of the trust issues that can arise and how to solve them, especially when it comes to the proper on-boarding plan.
Q) Is there an ideal process for succession in farm businesses? Is it a one-size-fits-all approach or is there some “wiggle room”?
A) Succession works perfectly as a non-event. The children have just taken over from mom and dad, accepting responsibility and everyone gets along really well. If there’s two children (or more) in the family that want to farm, they’re going to end up working together. But, that’s where the problems can come from in this generation. When you put two siblings together, trying to get them off to the same page, is very problematic because we have a history in agriculture that if you don’t get along or farm with your family, you would move someplace and start up your own farm. And that worked up until the 1970s.
Q) And now is it just too expensive to do that?
A) Yes, it’s economics.
Q) So with regards to the ideal process for succession, you mentioned it should be a “non-event” What do you mean by that?
A) Well in the past you worked with your parents, you got an education, you came back from school, you got responsibility and you gradually took over. Another thing that has happened, that’s pushed the succession issue is in the past is when you [were] doing a lot of the farm work, the body would get pretty worn out by the time you got to be…60/65 for sure. [The farmers] were looking for somebody else to come in (ie. the children) and take over. Today, you have 70/75 year olds that are still in really good shape because we just haven’t had to do the physical work on the farms any more. And so that gets problematic when the son/daughter is sitting there and saying “Gosh I’m 35 and I am still not going to the bank and making these [important] decisions.” And their father was running the show when he was 25. So that’s part of it, where the parents are in good physical shape compared to a generation ago. And that’s really not talked about, but it is a big factor.
Q) And so it sounds like starting the conversation is really important, but what’s your advice with regards to starting the conversation?
A) This is not a popular statement to make in the farming community but its imperative that the parents convey to the children what their expectations are before [the kids are] going to get control of the business. The one thing that I would be asking if I had children in farming today is that they go out and get an education, and they get work experience for two to five years working off the farm doing whatever – just get experience away from mom and dad. Buy your own gas, pay for your own vehicle, look after your own rent and become an adult, basically. The families that struggle with communication [in] succession, it’s usually that the children leave school and then come home and want to farm. Without getting any off-farm experience.
Q) So then once they do come back to the farm, developing some sort of on-boarding plan is also a part of that succession planning. What’s the best way to structure these plans?
A) When you’re looking at succession and best practices, you have to lay out expectations. When the children come back, they really want to get involved. Doing the physical work is so important. That’s where mom and dad can start to give areas of responsibility to the younger generation to come and work and to manage certain areas in conjunction with the parents.
So succession happens at three different levels: The first level is just doing the physical work and being involved and being paid for that. The next one is managing the physical part of the operation and getting involved in the financial side of it, going with mom and dad to the accountant, going to the bank, being involved in that and taking on more responsibility. And then the third side is ultimately getting control or getting ownership of the business.
Succession should be taking place at the first level and the second level right from the get-go. The last part, if you’re making all the financial decisions on the business but mom and dad are still a part of that ownership team, I would question what’s wrong with that because it’s your business.
Q) What would you consider the biggest mistake that families make when it comes to succession planning?
A) Going too fast. It’s a process: mom and dad just become less involved and the son or the daughter takes on more responsibility for those decisions. And it’s always intriguing when you finally see dad not showing up at those meetings. (When we’re ordering seed for example) and the younger generation has full responsibility. And that is usually about a five year process.
Q) What’s a common challenge owners and/or successors face during this transition period, and what’s a practical solution?
A) In a nutshell, succession is all about trust – and that’s the parent’s trust of the younger generation. The biggest challenge that is out there is the parents having the confidence to trust the younger generation to basically not wreck the business, [which is] becoming a bigger challenge all of the time because of the escalating of values of farm operations. It’s important to allow the children to gradually move into managing the business.
It’s also imperative that the parents work with their accountant to protect their retirement security. That’s the biggie because if the parents know that no matter what happens, they are looked after it will make the transition of assets a lot easier for the parents.
There’s one little quirky test that I use on virtually every family I’ve worked with and it’s simply asking mom and dad whether or not they have absolute trust in the younger generation to carry on the business successfully. Both parents have to be on the same page with that. And that’s [an answer] that comes not from the head but from the heart. Not all children born and raised on a farm should take over the business.
Editor’s note: This article has been edited and condensed.