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Treating Succession Planning Like a Process, Not an Event

Many farm families view succession planning as an event rather than a process and that, according to Darrell Wade, founder of Farm Life Financial Planning Group and a certified member of the Canadian Association of Farm Advisors, can be a big mistake.

As he explains in our Q+A, a good succession plan requires lots of different pieces that must be put in place over time to ensure the business survives for generations to come. Q) Can you please share a little bit about your family’s experience with succession planning on your parents’ farm? A) I grew up the youngest of four on a family farm just east of Toronto in Brooklyn, Ont. Me and my brother were both involved pretty heavily in the family farm. I returned from college to find my place on the farm and we worked together until the fall of ’98 when my brother got in a bad farm accident. He got tangled up in an auger and lost his left arm. Then, just six months later, when I’m trying to fill that gap with his role, my dad went in for a routine colonoscopy and they accidentally perforated his bowel. He died the next day of an embolism. As successful as my father was, he failed to think about the consequences of the right things not being done, which, in my eyes, was the planning piece. He had good people around him – he had a good accountant, a good lawyer, a good financial advisor – and I think they were all giving him good, independent advice, but not together as a whole. Things never really came together with his plan and unfortunately that left our family up in the air. The lack of planning in my family led to the demise of the family farm. Shortly after, the guy who was trying to help my father approached me to get into business with him. That was early in 2000; I’ve been in the financial planning business for 17-plus years. The first 10 or 12 years of my business were working within a couple hours of the Kawartha Lakes, working with family businesses and family farms doing succession, business and continuity planning. Since then, we’ve developed a more national brand that speaks a little bit more to my niche, which is the family farm continuity planning. Today people look at succession planning more as an event, and I’m trying to help them understand it’s a process that has to continue for years to come. In my experience – and I think this is why a lot of families fail – they have a lot of great people around them, but the people are working in silos. They’re not really working in more of a multi-disciplinary approach with the family to get them to their common goal. Q) From what you’ve seen, how common is your family’s experience? A) It’s very common. It’s so typical today that everybody gets caught up in the day-to-day, much like my father: “I don’t have time for this today, let’s put it off for three months, six months.” We get a lot of families that aren’t resistant to the process, they’re resistant to the timing. They say, “We’ve got so much going on, it’s not a good time.” Quite often I’ll say, “If not now, then when?” There’s never going to be a great time to do this. Q) Broadly speaking, what role does a strong succession plan play in helping to keep a farm within a family? A) I think the big thing is clarity: making sure that we’re clear on where they’re trying to go, making sure that the right values are in place and that the vision is aligned with all members. Secondly, that plan acts as a road map so that they understand what the expectations are both of their advisors and of them, the family. I think a lot of times they look to the professionals to help come up with ideas, but I think the best ideas are the ones that are co-created with the family. They understand what they’re trying to do, they just don’t know how to get there. So it’s clarity, it’s adding the perspectives of all the professionals on the team, and then giving the family the choice to choose which path is most comfortable. Families today have a lot of fears. If I’m talking to the 60-plus-year-old patriarch or matriarch of the family, they don’t want to start this because of their fear of conflict, their fear of change, and I think it all comes back to a fear that conflict could lead to disharmony. In most families, the goal is for the family to still have Saturday dinners together for many years to come. Q) What advice do you have to help families work through succession planning without compromising those relationships? It’s an emotional topic and family dynamics can be complicated. A) I think the first thing it goes back to is good communication. The most successful families communicate well. They sometimes have strong communication between the people that are working in the business – whether it’s father-daughter or father-son – but not everybody that’s part of the family always has a chance to have a voice. A lot of my meetings are around the kitchen table and I think the most successful families, the ones that can work through the challenges of the family dynamics, are the ones that are willing to come to the table, put their issues on the table and then I help to create a safe place to speak. I think that participatory culture is really key in helping families understand how to get through some of those challenges. Q) Who should be involved in succession planning and at what point should they be brought into the process? A) I think every family is unique, so I often say there’s no cookie cutter for this – parents know their kids better than I do when I first start this. I’m a big believer that everyone should have a voice, but not necessarily a vote. When I start my process, I want to speak with stakeholders, so the ones that are involved in the business or that are going to be involved in the future. I want to understand their day-to-day, their challenges and basically go through a bit of a SWOT – what are the strengths and weakness of the family, what are some opportunities and threats for taking on that growth that they want to take on, and then I circle back. Quite often mothers will still want the non-farming kids to have a voice in this. I try not to involve the outside spouses because it tends to just add another layer of complexity. But again, most of the families I work with have strong family values and they want everyone to understand what the outcome is going to be. Sometimes I’ll see that the non-farming kids are brought in early just to understand that someone is here working through some of these issues, but quite often we leave the non-farming children closer to the end and have a family meeting to say “Mom and Dad have undergone this process so that we can continue with or try to achieve family harmony.” I believe that if the overall plan is communicated so that everyone understands what the goals are and why I’m part of it, those are the most successful families that will get to the finish line. Q) What are the elements that make up a good succession plan? What sorts of things need to be covered? A) There’s no cookie cutter: they’re all unique in certain ways. The first thing is financial: making sure they have a very clear picture of the sustainability of the financial aspect of the farm. If they’re going to back away, can Mom and Dad get to the finish line with their lifestyle needs? Quite often we will have a financial plan done for the Mom and Dad piece. The next piece would be around transition – transition of roles, responsibilities, leadership, decision making. Again, it’s different for every family because some of them have already started to transfer those key roles. Others struggle because they don’t understand that if they’re going to back away, they need to transfer those decision-making pieces. There are often a lot of things that are overlooked in training and development. They say a son is very capable but then I understand that the 35-year-old son has never bought or sold a commodity; that’s something the father has always done. So again, the passing of the reins, so to speak, and the willingness to let go from Generation 1 [G1] to Generation 2 [G2] is something that is often overlooked. The third piece when we get done with transition is continuity: what are the things that need to be in place for continuous success in more of a trans-generational view. Often these multi-generational farms will look at it one generation at a time. But if you’ve got that 35- or 40-year-old son who is just about to take over, he’s often got a 15- or 20-year-old son ready to come on and go to [the University of Guelph]. If you can have more of that trans-generational view as you start to plan, it really helps. The fourth piece is around agreement. I always say we don’t want to have any surprises; we want to make sure we’re very clear on expectations. Today one of the biggest fears is around “what if”: what if my son or daughter’s marriage breaks down – is that going to impact the farm? We want to make sure that if there is a breakdown in a marriage, the farm doesn’t fall under the Family Law Act. You’ve got to put everything on paper today and have everything covered under the law. Those agreements start to cement or formalize things. There are a lot of informal partnerships out there and they work well, but the ones that don’t or the ones that we all hear about are the ones that have broken down, and the ones that have broken down are the ones that have never talked about the what ifs. The last piece is estate planning. If we’re going to pass on or gift the farm to one or two children and not the non-farming children, what have we done to think about the fair versus equal conversation? Again, that all ties back to the Number 1 goal of all these families, which is family harmony. Q) What’s the number one piece of succession planning advice you have to help current farm owners maintain family harmony? A) I think one of the biggest pieces of value that I bring to families is establishing good communication. I help facilitate quite a few family meetings, but then I try to leave them with best practices on maintaining good communication skills. Whether inside the farming world or not, it’s all about good governance. You’ve worked hard to establish these good values, you’ve built these good plans, but how do you maintain them? It goes back to having good policies and structures in place and the key one is communication policy. Maybe that’s a little too formal for the farm world, but I say we need to have a regular routine of communicating – communicating as a family but also communicating as a business owner. I try to make sure they know what a healthy meeting looks like. I have little tools I use around establishing a code of conduct or rules of engagement for the meeting, just so everybody understands. You don’t want to take for granted or assume that they’ve had regular business meetings before. It comes down to continuity planning, which is about establishing and maintaining good governance that lends to or leads to stewardship for the next generation. Q) What advice do you have for potential successors to get the succession conversation started with possibly reluctant parents? A) We get this quite a bit. We get these Millennials who are eager to take over. They say, “My dad has been stuck in a rut or he doesn’t want to talk about it,” but it comes back to the same stuff. It’s about having that courageous conversation. We often say we have a ready, willing and able family, but quite often it is G2 that’s ready, willing and able and not so much G1. It’s really about understanding why they are reluctant – what are their fears or concerns? I’ve had a lot of clients who are in their 70s and 80s and when they say they’re finally ready and I ask why now, it comes back to these fears. G1 has these fears of conflict, fears of sharing, fears of letting go. The next generation needs to understand that this isn’t easy for dad whether he’s 50, 60, 70 or 80. That generation’s fear of letting go comes back to their identity. Quite often, if we can understand what their concerns or their fears are, we can identify how we can work around them. The other piece to this is I find that Millennials today are well educated, they’re anxious, but they have to have a willingness to listen, too. Ask your father how he got the farm – start to open up the conversation about the past and understand the history. Maybe his father didn’t let go until he was 65 or 70. When those young Millennials start to understand the reason why, it helps to start that courageous conversation. Q) What are the most common mistakes you see farm families make when it comes to succession planning? A) I think one of the big ones is a lot of them will think their accountant or their lawyer can do this. I’ve had a lot of farm families tell me they’re just going to get a good will and that should take care of everything. That really isn’t succession planning – that’s estate planning. The biggest thing, I think, is not having a quarterback or a third party come in and lead. We’re in a world where you have to do what you do best and these families are good at farming; they’re not good at facilitating or leading and that’s why a lot of them get stuck. There’s a lot of great accountants out there and a lot of great lawyers as well, but a lot of the lawyers I collaborate with are the first ones that refer clients to me because they know [succession planning] is out of their skill set. It’s also out of their comfort zone. They really don’t want to go to the kitchen table and start getting into this because all of the sudden they feel like they are not capable and it’s very uncomfortable for them to try to work through conflict. So that’s a big one: there’s no one leading the team. I think a lot of us don’t know where to start. I’ll have families say, “I went to my accountant and spent so much money, I spent time with my lawyer and with my financial guy and the only thing he can really look at is the insurance piece.” They feel like they’re spinning their wheels and not getting anywhere. They get frustrated and say, “We tried this already and all we got were three invoices and we have no plan.” You have to have someone who’s speaking with the voice of the farm. A lot of them just don’t have that. Having a third-party professional come in is important. I don’t speak for any one person in the family; I work for the farm business. Q) In a perfect world, when should succession planning start? A) I think the sooner, the better. I have some families right now whose kids are pre-teens but they’ve already expressed some interest or they know that at least one of the four kids, for example, will want to take on that successor role at some point down the road. Again, go back to communication around [succession], so people know there’s an opportunity and they can better plan their education around that. I have seen a huge shift in my 17 years [in the business]. These Millennials today are coming out of Guelph and Ridgetown and great ag educational backgrounds and they’re ready. They come back [to the farm] and say, “I want this to happen now.” Another big factor is the rising land values. We’re not talking $200,000 or $300,000 farms anymore; we’re talking about $2 and $3 million farms and that involves a lot more work because of the tax piece. With every family I’ve worked with, one of the driving factors is how to avoid or minimize tax. It’s a lot easier to plan for these things when you’ve got time on your side.

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