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Family Farm Transition Planning

ASAC annual meeting

October 19-21, 2014

Gary Snider; AAC, CAC

Joe Kluender, CAC, CFBA

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© Farm Family Dynamics

Family Business

• 90% of US businesses are owned and managed by families:– Wal-Mart – Cargill– Local hardware store– Family Farm

• Only 30% survive into the 2nd generation

• Only 12% survive into the 3rd generation

- Jane Hilburt-Davis and W. Gibb Dyer, Jr., Consulting to Family Businesses

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© Farm Family Dynamics

Family Business • How do they survive to the next generation?

– Willing and able to adapt to change◊ Business organization

– Willing and able to adapt to new technology◊ Record keeping◊ Communication◊ Science

– Willing to pass on ownership◊ Formal = ownership◊ Informal = power

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© Farm Family Dynamics

Three Dimensional Development Model

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Cousin Consortium

Sibling Partnership

Controlling Owner

Ownership Axis

Business Axis

Start Up Expanding MatureYoung Family

Working Together

Passing the BatonFamily Axis

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© Farm Family Dynamics

Change Within the Three Dimensions

• Ownership changes less frequently, but it is the most dramatic

• Family changes continuously and is the most emotional

• Business change is erratic and becomes more complex as it moves from stage to stage

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© Farm Family Dynamics

Succession

• Is the ultimate test of a family business

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© Farm Family Dynamics

Long Term vs. Short Term planning

Estate Box•Farm land•Life Insurance•Non-farm Investments•Home•Personal effects

Operations Box•Operating Entity•Machinery•Home site •Grain bins•Grain inventory•Debt

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© Farm Family Dynamics

Family Business Transition

Estate

Business

(G-1)G-2 Stake

holders

G-2 active

Business Transfer• Compare Entities• Growing the Business

– Inflation– Need to divert $

• Mechanics• Retirement & Estate Planning• Without a management transfer – asset

transfer is doomed

Successful Business TransferRequires # 1

• Appropriate Transfer Method• Operating Assets 1st

• Business Financial Strength• Imperative to have excess cash flow

• Retirement Planning• When and in what manner

• Estate Planning• A plan giving operation control of business assets

• Transfer timeline with accountability

Successful Business TransferRequires # 2

• Common Goals• Shared vision & values

• Clear Communication• Value of regular business meetings

• Give and Take

• Trust & Respect• Understand what makes each other tick

Transfer Steps1. Assess retirement needs

2. Can business handle it

3. Can we get along

4. Appropriate transfer method

5. Retirement planning

6. Estate planning

7. Medicaid risk

The “Perfect” StructureLand Company

Leased to OperatingCompany

Other Land Co.Maybe Family

Trust

Operating CompanyWith 1st & 2nd Generation

“Profits Interest LLC.”

Hidden IssuesConflict

CommunicationTrustCommitmentTransparencyOrganization

Getting Help: Role of Consultants

LawyerAccountant

Estate Planner

Ownership

LawyerAccountant

Estate Planner

Business

CACProduction Consultant

Technical college

Family

Family CounselorsPsychologist

Clergy

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© Farm Family Dynamics

Take Away Thought

Succession. . .

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is a journey, not an event

Roundtable

You ask us your questions?