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Plan, Prepare and Pass It On

Plan, Prepare and Pass It On

“Are you a Family-First Business or a Business-First Family?” 

That’s the question Jolene Brown, CSP, CPAE asked at the start her presentation during the “Plan, Prepare & Pass It On” Conference held earlier this spring in Billings.  Brown is a farmer in Iowa as well as spokesperson for agriculture, especially regarding families in agriculture. “Ninety-five percent of every conversation I have with farm and ranch families is family first.  People tell me they don’t want to rock the boat. Everybody wants to say they will all get along. That means their ag operation is heading into a future based on habit, tradition and hope. If you want a Family-First Business and it’s a hobby, that is fine. But if you want to run your ranch or farm as a legitimate business, you need to be a Business-First Family.”

Brown went on to present “Top Ten Mistakes That Break Up a Family Business.” ™   

Assuming all genetic relationships equal good working relationships.

Brown says you need to set the same standards for family members as you would for your employees. “Remember that acceptance in a family is unconditional; however, acceptance in a business is conditional and it’s not a birthright,” Brown said. “Keep in mind that people will perform to the lowest standard you tolerate,” adding that a family business is not the place to rehabilitate a family member.

Believing the business can financially support any and all family members who want to work together. 

Ask if the senior generation is secure in their future, and what is the estimated cost of living for each family unit on the ranch. Does the cash flow match the estimate? Brown stressed that your books must be accurate, timely and transparent.

In addition, think about what each family member can bring to the business, and ask if the business really needs them. “I always recommend that anyone who wants to come back to the family business work in a non-family business for two or three years. Not only will they learn how another business operates, but they will also learn to be an employee. When that family member does come back, it needs to be on probation for a year.”

Assuming others will/should change, not me.

Brown explains that change will happen, and provided the quote: “If the achievement of your goal depends on the assets and power which someone else has and they do not have your same goal, they do not have the problem.” Period.

Presuming a conversation is a contract.

Brown listed three false assumptions which fail to materialize and cause considerable grief in the family. These include: “Work hard, someday this will all be yours”; “I’m going to retire”; and “Don’t worry about your brothers and sisters, they have other jobs; they’re not interested in the business.”

(She noted that if you don’t retire, you’re going to be dead.” You will bring the business down; you will get injured – critters now move faster than you can. You will drive your successors nuts. Retire means we still need you, but driving vehicles isn’t one of those things we need you for! Let other people do the chores you can no longer safely do.)

At this point, Brown provided direction for the Business-First Family which was to make sure there is a business plan; have long-term goals for the business; have a structure that includes job descriptions and cash flow; and above all, have an exit strategy. 

The exit strategy needs to include who has the option to buy and in what order; how will assets be appraised; define any payment terms and interest as well as establish funding for payment and how can the buy-sell (exit strategy) be amended?

“You must get everyone to sign the buy-sell, including spouses. It’s a legal document,” Brown urged. “Remember, if things aren’t in writing, they don’t exist,” she quips. 

The ag family business consultant explained that every family ag business needs three outside professionals to be a part of your business team: a qualified accountant who can act as a business partner; a good attorney who understands family business set up and who can serve as a family business coach; and a personal financial planner.

Believe mind reading is an acceptable from of communication.

Brown suggested having a “contract” for communication that will provide clear expectations. These include the desire to work together as team, eschewing any adverse behavior toward each other. 

“It’s important to agree on standards and decide how often you want to plan to communicate," Brown said. “It can be a meeting every Monday morning. If someone is confused, rather than avoiding a task, talk over the situation. Your communication “contract” should include that positive attitudes are essential. Remember that if you choose to say nothing that means you agree. If you walk out on a conversation, that means you’re in agreement with what was said.”

Failing to build communication skills when the times are good, so they’ll be in place when times get tough.

Brown advised creating and adapting a snapshot of your own business. “That means you decide when to have meetings, provide job descriptions and the compensation package, office and organization, and have the goals and evaluation of those goals,” Brown said. “It’s important to include in the overview appreciation and celebration.”

It’s wise to have a written code of conduct, plan conflict resolution (go to arbitration if necessary), a plan for regular business meetings (if you have an LLC you must have an annual meeting---take notes). Her suggestion for a meeting is to have a Farm Overview that lists everything from leadership to land use to farm sites to livestock that can be used to make meetings more productive as each team member selects a few topics they wish to discuss during the business meetings.

Ignoring in-laws and offsite family

What’s the role of the spouse in the business? Brown mentioned that sometimes a daughter-in-law might be the perfect person to manage the books. Ask what the spouse’s expectations are of the business. Ask yourself what role off-site family pays in decision making and contributing to the business.

Forgetting to use common courtesy

“It’s important to recognize a family member in the business who has done a good job,” Brown says. “Show appreciation and remember to compliment them. We often treat strangers with more courtesy than family members.”

Having no legal and discussed estate, management and ownership transfer plan and buy- sell agreement 
Wills can be changed on a whim, and Brown strongly advises not using them for a legacy business. 

“The buy-sell agreement should trump the will,” said Brown. 

Neglecting vital facts of fair and equal, paying cash for emotional debts and failing to celebrate.

One of Brown’s mantras is that it’s essential to know the difference between fair and equal. Dividing up your farm or ranch equally between siblings when one person has done the majority of the work is not fair. 

“it’s important to realize that doing things like transferring ownership too soon, too late or not at all will doom a ranch family,” said Brown. “In addition, you never should believe that more salary and gifting assets are a solution to a relationship problem. You must recognize that agriculture can only be a way of life for those who treat it as a business.”

More than anything, celebrate.

Applaud those who have done well and appreciate what you have. Then look for humor everyday “Funny stuff happens all the time. Write it down. When the going gets tough, you need humor.”

For more information on Jolene Brown visit www.JoleneBrown.com or call 319-643-2429.


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