Business Succession Planning Tools
By Kindra Gordon | Angus Media
Business planning succession is often avoided due to fear, noted Michael McCormack as he addressed cattle producers attending a Learning Lounge session offered Feb. 2 at the 2017 Cattle Industry Convention & NCBA Trade Show in Nashville, Tenn.
McCormack, a financial advisor with Lincoln Financial Agribusiness, explained that the most common “fear” scenario he sees among family businesses — such as farms and ranches — is that the owners do not teach the next generation how to run the company because they do not want to lose control.
The situation is often compounded because the majority of individuals in the second generation will not challenge the tradition being set by the owner. Or, McCormack said, the second generation becomes trapped and often feels the sentiment, “Every time I get close to the end zone, Dad moves the goal posts.”
However, multi-generational family businesses should stop and consider an even bigger fear, McCormack said. “If no succession plan is in place, the government and IRS will step in and make the plan for you.”
With that said, McCormack encouraged farm and ranch families to take steps to plan for transition of the business to the next generation. He noted that an estate-planning advisor, attorney and accountant are likely part of the planning team, but the owner must typically be the one at the center initiating the process.
As a starting point for succession planning, McCormack suggested pondering the following series of questions, and then discussing those scenarios with the family, as well as the succession planning specialists involved.
- Does our operating or buy/sell agreement encompass death, disability, departure, divorce, deadlock, disagreement or default?
- If any of the above happened, would we be able to afford to implement the plan without jeopardizing the operation?
- At my death, will the land stay with the active farm family members or would non-active farm family members inherit the land?
- If my neighbors made a great offer to my non-active heirs, could they sell? If they sold, what would that mean to the farm’s future?
An additional caveat to estate and succession planning that McCormack encouraged farm and ranch families to remember is that once you have a plan in place, you must continue to keep that plan top of mind — and share it with heirs. He noted that “times change and people change,” which means that over time, the plan may also need to be updated and changed.
As examples of possible necessary changes, McCormack said laws regarding income and estate taxation change, as do laws regarding business entities. Likewise, family dynamics may change — and the business itself may change by growing, shrinking or diversifying.
Because of these potential changes, McCormack suggested at least annually reviewing the following:
- Is the plan comprehensive? Do you understand what’s been done and how it works?
- Have you updated it to reflect who is in the business and who is not?
- Are steps taking place to put the transition in motion and implement the plan?
Lastly, McCormack underscores that succession planning is not impossible. It all begins by taking the first step.
You can learn more about the succession planning services offered by McCormack’s company Lincoln Financial Agribusiness online.
Editor’s Note: Field Editor Kindra Gordon is a freelance writer and cattleman from Whitewood, S.D. This article was written as part of Angus Media’s coverage of the 2017 Cattle Industry Convention. For complete coverage, visit www.angus.media.