We just finished our main Ranching for Profit School delivery season, which was fulfilling as ever, but we are all glad to be home too. Eight full schools since Thanksgiving means we got to meet and work with over 400 ranchers who were willing to travel to learn in the last three months. That is a lot of positive energy in one season. However, it always seems like the topic of succession lingers around on the worry areas throughout the week. We can practice running the numbers, learn more about ecology, and hold ourselves accountable to the desired results on our action plans, but succession is a hard topic to master. I suspect it always will be. It will be a hard topic because people are involved, and most likely family. So we can make excuses avoiding the tough conversation, or we can face the problem head on and move forward. That is our choice.
There was a fantastic example of an in-progress transition during one of our schools. The student’s story was about painting their uncle’s ranch. He compared the success his uncle has had on his ranch throughout the years to an artist working on their masterpiece. He said “My uncle has been painting this ranch for thirty years”, while he was mimicking a tiny paint brush on an easel. Then he said “Nobody wants their fine masterpiece to be ruined by a big fat brush slopped across the middle.” He went on to tell us that he and his brother literally started painting ranch buildings on their own. That act of painting the buildings gave their uncle enough trust to move forward with them managing the ranch. Some paint, a ladder, and some time invested got them the opportunity they had been looking for.
Here are some key points from the school to set your ranch business up for success:
- Communication is key.
- Does everyone involved know the business goals and key financial metrics?
- Clearly define roles and responsibilities.
- Both generations need clarity before, during, and after succession.
- Asset succession supports the management succession plan.
- Who owns the assets and who manages the assets can be different.
- Remember, fair is where we go to see the pigs in the summer.
This short list is just a simplification of the key points and principles that we teach at the school. But it gives you a place to start regardless of the context or situation your operation may currently be in. Each operation is different so application is up to the people involved. Sometimes the older generation might hear “they just want us off the ranch so they can change everything.” Or the younger generation might hear “I just need to leave the ranch and go somewhere else.” Unfortunately we have seen family nightmares when it comes to succession but we have seen wonderful transitions as well. What does success look like to you? Is success having a million dollars in the bank? Or is success having all the kids home for Christmas?
I encourage you to find some resources and start working on your succession plan now. If you like reading, Crucial Conversations is a great start. Our Executive Link members are reading it now preparing for the continuing education session at our winter EL meetings. I would also suggest Elaine Froese’s book, Building Your Farm Legacy as well as her informative blog posts. Dave Pratt has a “Two Legacies” essay in Healthy Land, Happy Families, and Profitable Businesses that is very powerful, talking about Pioneers and Builders. You will find there are plenty of resources available when you look for them. Your plan might take time, and it might take money, but it will be worth it. Because what’s the cost to you and your family if your succession goes wrong?
The problem with family business succession planning is there is often confusion between emotion and business, or feeling and finances. Both are vital considerations, but finances, or the business side of the business determine longevity and continuation, while the emotions determine how people “feel” during and after the transition. While the lifestyle of ranching can be highly satisfying, protecting the assets and putting the best team in place to protect and grow the assets are what keep the ranch operating through generations. I recently read about a ranch that was transferring to an uninvolved cousin to keep the same last name on the ranch, rather than to the daughter who had returned and was managing the ranch! An entirely emotional decision with (apparently) little thought to economics.
In generational succession a real open ( and sometimes difficult) discussion has to be made on who is most financially able to carry the ranch forward with a solid business plan. Sometimes the best answer is to sell the ranch, divide the money, and let everyone proceed from there. If one member is able to then buy the property, it becomes a financial decision, not an emotional one. Emotions don’t pay the bills or put food on your familie’s plate.
Great points Dan!
Fair is where you go to see pigs. Ouch. Tell that to a parent trying to figure out what to do. Fair doesn’t mean equal but is the continuation of the business more important than your children. I think not
Thanks for pushing me on this here Tim. One thing to remind parents is that they don’t owe their children any assets. Their assets, their choice. Clarity and love is owed, but no assets. However the flipside is children don’t owe parents their future by working on the ranch that might become theirs. I would agree the continuation of the business if not more important than your children, but would splitting the ranch in half to create two ranches that are too small to be profitable and fun be fair to them either?
Tim, I like that! Mostly because I learned early that not much in life is “fair”. I’ve been through 2 separate succession events, one involving my in-laws, the other with my own parents. In the first, we (my MIL, wife and I) agreed to a purchase price since the only parties interested in carrying on the business was my wife and I. The purchase was handled as a regular transaction with money going into escrow yada yada. At the time of MIL’s death, 1/3 of the debt was dissolved (our share) while the balance due was then split 2 ways between my SIL and BIL. Clean, neat, tidy and everyone got a “fair” deal given their interest (or lack thereof) in the business. The second scenario involves my own parent’s property where that plan involves the oldest son, getting the land, the youngest son gets the house (since the oldest already has one on the property) and the middle son gets whatever cash is leftover in the probate. Again, everyone gets what they need with little consideration of dollar values. And, for the record, only my MIL, wife and I had input into the first transaction and no one besides my parents had input into the other. Almost no issues between the siblings involved. And we still go the fair to see the pigs 🙂