Family-owned Farms:Challenges

and

Opportunities

Materials developed by:

Dr. Patricia (Pat) FrishkoffLeadership In Family Enterprise, LLC

Founder and Former Director of Austin Family Business Program

at Oregon State University

In this section, you will 1. Define vision for your farm and family2. Analyze challenges and opportunities3. Develop plans that improve your chances of

moving toward where you want to be in the future.

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Ten Critical Decisions1. What is your vision of the future in terms of continuing as a family farm business?2. What actions are important to minimize risk by anticipating possible worst cases?3. How will you groom young family members as part of your farm family?4. What talents and experiences does the farm need for future success?5. What employment opportunities will you offer to family members and what expectations

will you have?6. What will be the role of non-family employees, and what will they need to do their jobs?7. Who will own the farm and farm business next, and how will ownership transfer? 8. Where might a strategy for selling come into play?9. How will senior farmers move to sharing key decisions?10. What will strengthen the family glue and keep you headed toward the future together?

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Decision 1What is your vision of the future in terms of continuing as a family farm business?

QUESTIONS TO CONSIDER:

How long do you plan to have your farm business last? Dr. Léon Danco once proposed that every business post this sign -- “This business shall last forever.” Does this fit your situation?

Do you hope to transition the farm to the next generation?

Hold a family meeting to discuss these questions. Start by having each family member write or draw something that captures a vision of the future.

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Vision – “golden opportunities”and your commitment

OPPORTUNITIES

What does the farm mean to you and your family?

What legacy do you want to preserve?

What makes the farm business better because it is run by your family?

What makes the family better because it has a farm business?

Include these questions in a family meeting, making a long list of the opportunities. Make copies for everyone. Bring the list out, on a regular basis and especially when conflict arises.

COMMITMENT

How much would you be willing to commit of these resources, in the next year, to pursue what you want for the future?

– $$$

– Time

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Decision 2What actions are important to minimize risk?

It is important to stop here and be honest about risks. List some of the situations

that could create “worst-case” scenarios and, unlike the weather, can somewhat be managed.

Consider the four D’s as part of your list. D_____ D_______ D________ D_________ Risky Situation Action

________________________

________________________

________________________

Once you fill in the blanks, next to each response list the one action that is most important in order for you to protect the farm and your family. This will help you minimize possible risk.

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Decision 3How will you groom young family members as part of your farm family?

Your children will grow up as part of your farm family, whether they ever become employees or owners. These actions could help them embrace the farm as part of their heritage, as well as yours.

You, as family members, might teach intentionally by helping them create opportunities to:

Be helpful in ways that develop skills Play, in activities that promote learning Invent, plan, undertake and finish projects Weigh options, make decisions, and understand consequences Build leadership and independence as well as team focus

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Decision 4What talents and experiences does the farm need for future success?

What is needed in the next generation?

What abilities will be needed that the senior generation didn’t need to know or that they learned later in life?

How will you ensure that the younger generation is smart enough?

Consider drafting the want ad that you would place in the appropriate local or industry publication. This exercise will help you define your expectations, in terms of skills and experiences. These criteria should be applied equally whether non-family or family are employed.

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Decision 5What employment opportunities will you offer to family members and what expectations will you have for them?

FamilyFamily Focus Invitation to all children Including their spouses? Create jobs that fit their skills

and experience Grandkids, too Step-kids, too?

Work toward equal compensation after a long period of time

Evaluate ability to work as a cohesive team

BusinessBusiness Focus Expectations, set when kids are

teens, about:– Education

– Experience

– Coming and going

Clarity about in-laws– Employment?

– Ownership?

Hire only those who add value to the farm, and who meet the expectations

Compensation– Based on position, skills and

experience

– Retention and raises based on performance

Options

Which focus

best describes your plan? Or is

it a blend?

Check all small boxes where you need to

define specifics.

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Discussion – Phone Call from SonYour older son called late in the first semester of his sophomore year, to let you

know that he wasn’t making it in college. You suspect too much focus on girls and parties. “Could he come back to the farm?” he asked?

You and your wife had met at the same college and were married soon after graduation. You had told all three of your children that you expected them to get college degrees.

What are your options? What action would you take were this your family?

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Decision 6What will be the role of non-family employees, and what will they need to do their jobs? Establish a realistic budget for human resources, including family

employees. Clearly distinguish from among the roles: owner, employee, family

member – for both family and non-family folks. Provide a clear organizational chart and detailed job descriptions.

Have non-family employees understand their relationship to the family and vice versa.

Give all employees the guidance, leadership, information, and independence to do their jobs.

Do regular performance evaluations and build plans for personal development.

Think carefully before sharing ownership with anyone else, family and non-family alike.

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Decision 7 Who will own the farm and farm business next and how will ownership transfer? Who can own in the next generation, and who can’t?

– Do your legal documents support your wishes?

• Will

• Shareholders’ agreement (buy-sell)

Will your ownership strategy aim toward?– Equality – everything divided equally

– Equity – giving more of business assets so as to have those leading the businesses have decision-making control, through outright ownership or voting strength (such as general partnership position, or trustees for a trust)

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Who will own the farm and farm business next and how will ownership transfer? - continued

Estate planning is essential to the survival of the farm; otherwise, the government and the lawyers end up as winners.

Determining future ownership, of the land and of the farm business, are among the hardest decisions you’ll have to make.

Critical steps are: finding good advisors asking important (sometimes emotional) questions making decisions early communicating decisions clearly putting formal financial and legal plans in place

Which of the steps listed above is most likely to stop or slow your planning?

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Discussion -- Who Owns Next?

Mom and Dad met earlier this week with their three children, Cindy (36), Todd (33), and Nancy (31), and their lawyer, to explain the decisions just finalized to transfer the farm land. Last night the girls came by and asked to talk to their parents, quickly expressing anger and disappointment with the plan. It seems that Mom and Dad divided the land so that Todd would get the land that houses the operations, including the barns and stables, plus the original homestead land. The girls get similar acreage, from properties added fairly recently; each property has a similar-sized house on it.

All three children have worked actively in the business. Todd has been full-time; the girls have been part-time, staying home when possible to raise children.

What are the issues? What’s your advice? And, what aspect of ownership might challenge your family?

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Discussion 8Where might a strategy for selling come into play? Under what conditions would you sell?List at least two here.

________________

________________

What would you change if you knew that you might sell?

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Decision 9How will senior farmers move to sharing key decisions?

Research shows that the farm is more likely to succeed if the younger generation assumes decision making while they are in their prime, without having the senior generation meddle, and possibly sabotage

the transition.

What might the senior generation retire to?

What will it take for the senior generation to share decisions with others?Recognize that as principal owners, they have the right to make whatever decisions

they want, for as long as they want.

Will they ever let go? If not, how will that affect younger generations? What must younger generation family members do to take charge?

What does the senior generation risk if they don’t let go and have others share in decision making?

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Decision 10

What will strengthen the family glue and keep you headed toward the future together?

Show respect, especially to those whom you love the most.

Regular meetings of the family, to talk about the farm. To keep folks current. And, to have everyone have a chance to be heard.

Provide opportunities even for those not actively involved on the farm.

Family time, absent farm talk (at least as much as possible).

Balance criticism and appreciation.

Record your history and celebrate the legacy.

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Getting What YOU Want:YOUR ACTION PLAN

Which decision is most critical to the success of your family farm? Circle one question number only. 1. What is your vision of the future in terms of continuing as a family farm business?2. What actions are important to minimize risk by anticipating possible worst cases?3. How will you groom young family members as part of your farm family?4. What talents and experiences does the farm need for future success?5. What employment opportunities will you offer to family members and what expectations will you have?6. What will be the role of non-family employees, and what will they need to do their jobs?7. Who will own the farm and farm business next, and how will ownership transfer? 8. Where might a strategy for selling come into play?9. How will senior farmers move to sharing key decisions?10. What will strengthen the family glue and keep you headed toward the future together?

What is the first step that you will take to make this decision? And by when?

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Homework

BEFORE NEXT SESSION: Meet with other key stakeholders to begin the process of defining a

compelling vision for your family farm. Include in that vision your dream for future generations and how long you want the farm to remain a legacy in your family.

IN THE TIMEFRAME THAT YOU SPECIFIED: Take the step that you committed to, that addresses the one question which

you specified as most critical to the success of your farm. And, as you work on that step, discuss that action with other key

stakeholders.

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Family Farm ResourcesBOOKS (all available through Amazon):

– Passing Down the Farm, The Other Farm Crisis, Donald Jonovic, 1986.– Keep the Family Baggage Out of the Family Business: Avoiding the Seven Deadly Sins That Destroy Family Businesses, Quentin

Fleming, 2000.– At Home in the Vineyard: Cultivating a Winery, an Industry, and a Life, Susan Sokol Blosser, 2006– Legacy by Design, Succession Planning for Agribusiness Owners, Kevin Spafford, 2006. .

CHECKLIST– Farm Succession Risk Management Checklist. Free, self-scoring tool to evaluate your progress and chart

action.

At http://www.familybusinessonline.org/resources/frm_chklist_farm.aspx

MAGAZINES– “Family Business,” published quarterly.

www. Familybusinessmagazine,com. Includes a good e-summary (alas, but filled with advertising between the topic bullets).

GAME– “The Farm Game.” A good, and fun, tool to teach children about farm business management. Developed

by a farmer “invented on the seat of a tractor” (to make some extra $$). www.farmgame.com.E-CLIPS

– www.eclips.cornell.edu. Free to use. Contains all of Frishkoff Family Farm presentation, other dairy producers, and many other entrepreneurs. Tons of advice, at the click of your computer.

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Page for notes

Left intentionally blank so that you could tear off the last page, giving you a working copy of the ten decisions, and also for logging your action plan for research.

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List the number # for the decision that you chose (1 through 10)

What is the first step that you will take to make this decision? By when?

Demographics: Please help us understand a bit more about your farm and family. Circle best answer for each numbered question, or fill in the blank provided.

1. Gender: M or F 2. Your generation on the farm: 1st 2nd 3rd 4th 5th more

3. Farm in your family since _____ (year) 4. Acres farmed ____ (owned and leased)

5. As you look at others in your industry, do you consider your farm

small? medium? large?

5. Who else works full-time with you on the farm? Circle all that apply

spouse sibling(s) parent(s) child(ren)

7. Total number of full-time, non-seasonal employees ______

Your Name: County:

Follow Up and Project Research

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Ten Critical DecisionsWorking Copy

This is your check-off list. Tear it off.As we proceed, mark each decision that seems critical to the success of your farm.1. What is your vision of the future in terms of continuing as a family farm business?2. What actions are important to minimize risk to anticipate possible worst cases?3. How will you groom young family members as part of your farm family?4. What talents and experiences does the farm need for future success?5. What employment opportunities will you offer to family members and what expectations

will you have?6. What will be the role of non-family employees, and what will they need to do their jobs?7. Who will own the farm and farm business next, and how will ownership transfer? 8. Where might a strategy for selling come into play?9. How will senior farmers move to sharing key decisions?10. What will strengthen the family glue and keep you headed toward the future together?