When is the Right Time for Succession?

Trying to determine the right time for change is one of the most challenging aspects of Succession Planning. How can we be sure all parties are ready for the next chapter in their lives?

The current owners may feel the next generation do not yet have the skills and knowledge to take over ownership of the business. The future owners may be concerned they have not acquired the information and knowledge necessary to take on the financial and legal responsibilities that come with business ownership.

To determine an appropriate timetable for handover we must firstly recognise there are 3 separate and distinct transitions to be considered. These are:
1. Management Transition
2. Business Transition
3. Property Transition

Generally, this is the order in which the changeover to the next generation takes place. Taking on a senior management role precedes the significant step to business ownership. Any transfer of property can be left until all stakeholders are comfortable with how things are progressing.
Creating a structured environment in which all of the elements of transition can occur is critical to a successful outcome.
There are some important questions to be answered:
– How do we transfer operational, management and business ownership knowledge to the next generation?
– How and when do we assess if the next generation are ready for the changes?
– Are the next generation comfortable with what they are taking on?

Creating a Checkpoint Date

At this time, all parties would determine whether to proceed with the finalisation of the Management transition and commence the Business Restructure (effectively an “in or out” decision regarding future intentions). This decision should require unanimous approval. Some of the following alternative courses of action could then be undertaken:

1. Proceed with the Management Transition
2. Determine a date for the Business Restructure
3. Determine a methodology and timeframe for the property transition
4. Defer the restructure date to a later time
5. Allow the next generation to take up a role in management but not ownership
6. Appoint a farm manager under a collaborative farming agreement
7. Consider preparing the business for a future sale

The period from the beginning until the Checkpoint Date varies according to the circumstances. For instance, have the future owners already been working on the farm for some time or are they new to the role?

If there is more than one sibling involved in the business, the time prior to the Checkpoint can be used to determine if they can work in partnership.
Utilising the period of time up until the checkpoint date is a crucial part of the exercise. A learning environment has to be established for all parties.

Creating a learning environment

To provide the basis for a knowledge transfer from the current to the future owners, consideration may be given to the establishment of a Board of Management and the documenting of policies and procedures.

The Board of Management allows all parties to have a constructive involvement in the business. Family Board Meetings should be held regularly and be properly structured with minutes, agenda’s and action points.

Documenting Policies and Procedures avoids a lot of conflict and frustration. Policies are the rules to be applied and procedures are what must be carried out.

It is common practice for many farmers to keep information and knowledge in their heads. We must create the means by which this can be extracted and imparted to the next generation.

Open communication within a predetermined set of guidelines creates both a healthy business and a healthy family life. It also promotes family unity and goes a long way in preventing future conflict.

Making the Checkpoint Date Decision

Prior to the Checkpoint Date, the family should undertake the analysis necessary to determine the suitability of the next generation to take up management and/or business ownership roles. This process should include:

a) Establishment of an organisational chart that outlines the internal structure of the business including roles, responsibilities and relationships between individuals within the business. It is important the organisational chart provides an accurate representation of the managerial hierarchy and the manner in which different job titles relate to each other. The suitability of individuals should then be mapped against the requirements of the business that have been identified in the organizational chart.

b) Conduct a leadership assessment to determine the following:
I. Does the individual concerned reflect the inherent business and family values and can they impart them to others?
II. Are they able to inspire, motivate, energise and encourage those around them? Do they know how to go about the process of decision making? Do they have good judgment skills but are also flexible enough to change their mind when new information becomes available?
III. Do they have the ability to communicate in a clear but fair manner? People admire leaders who show them respect and understanding. They do not aspire to those who bully them or use their position of power for negative purposes.
IV. Do they have the strength, perseverance and ability to keep going even in the face of adversity?
V. Do they have the lateral thinking and imagination to help the business to navigate through difficult times and also maximise the opportunities when times are good?

c) Determine whether any intended partners can work together as management and/or as business owners. If a sound partnership agreement was in place to provide a set of governing rules, would this alleviate any friction between them? Would a partnership improve the financial and emotional wellbeing of family members or perhaps have negative outcomes? If the decision is to not proceed with the partnership, predetermined alternative pathways should have been considered.

As in all aspects of succession planning, a structured approach gives the best opportunity for success and provides clarity for all involved.

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