FARM & FAMILY. Jonathan Small BSc. P.Ag FEA O: C:

Transcription

1 FARM & FAMILY Jonathan Small BSc. P.Ag FEA O: C:

2 Farm Management Consultants? What do they do? The things you might expect: Business Plans. Feasibility Studies. Crop Planning. Cash Flows & projections. Financing proposals. Economic Studies. Marketing. Farm Management Consulting

3 Farm Management Consultants? What do they do? The things you might expect: And things you might not: Training. Litigation Support (Expert Witness). Insurance Claims. Succession Plans. Farm Management Consulting

4 FARM & FAMILY Get succession planning that works for both.

5 80 percentage of all businesses world wide are owned by families 4.7 number in millions of people employed full time by family businesses in Canada 64 percentage of family businesses have not established a process for selecting a successor 70 percentage of new jobs created by family businesses annually in Canada Average No. of employees is approximate percentage of Canada s GDP generated by family businesses Fast Facts 43 percentage of entrepreneurs in their 60 s or 70 s have NO exit strategy

6 Challenges of Family Enterprises

7 John L. Ward s 6 Biggest Challenges 1. Maturing business life cycles and increasing competition. 2. Limited capital to fund both family needs and business growth needs. 3. Weak next-generation business leadership. 4. Entrepreneurial leadership s inflexibility and resistance to change. 5. Conflicts among sibling successors. 6. Disparate family goals, values, and needs. Peter Leach s Four Challenges 1. Lack of communication ( conflict). 2. Family members; employment in the business (Merits VS Entitlement). 3. Business transition to next generation (Succession). 4. Manage Change un both the family and the business (changes). * Source; 1. Growing the family business: special challenges and best practives. John L. Ward, Family business review, (1997), 10(4) ; 2. Family Business Rulebook, 2008, Peter Leach. Challenges of Family Enterprises

8 About 30% of family-owned businesses make it to the second generation. About 13% make it to the third generation About 3% make it to the fourth generation and beyond. Transition Statistics

9 Lack of a common vision between interested parties Lack of communication framework for all parties involved Difficulty of dealing with conflict, particularly around sensitive issues Unwillingness for all involved parties to support the succession Owners are ambivalent about planning for transition and/or reluctant successors Managing business profitably through change Breakdown of Communication and Trust withinfamily Heirs Unprepared for Required Roles and Accountability All Other Causes 15% 25% 60% Transition Failure Causes

10 INTRODUCTION

11 MULTI-DISCIPLINARY SOLUTIONS FOR A MULTI-GENERATIONAL LEGACY

12 Transition planning is: A highly complex process About family, people and relationships About ownership, management and estate About what is fair Driven by family values, wants and concerns An event Transition planning is not: One person s problem About minimizing taxes About equality Driven by technical issues that are handled by lawyers, accountants and financial planners Introduction

13 Successful Transfers Common Vision of business development New owners and managers are clearly identified and trained Open dialogue, free circulation of information, formal and informal team meetings Successors involved in decision making and business management Mutual respect & trust Transferors accept the idea of leaving their place Introduction

14 Unsuccessful Transfers No communication/consultation Do not see themselves as young entrepreneurs with similarities to those in industry Successors unprepared No monitoring Surprises Business is not viable Lack of trust Source: Caroline Collard and Brigitte Pare Introduction

15 What makes Farm Succession so unique and challenging? It is where you grew up. It is the family home. Farmers have some unique tax advantages that require careful planning to utilize. Agriculture has a culture of family succession like no other. The business includes a unique and attractive lifestyle loved by those who enjoy it. Typically farms are asset rich with valuable but active business assets. Agriculture is exposed to many levels and many types of risk. Which is why you need people working with you who understand those things, understand your business and understand you. Introduction

16 Typical farm family that I meet. Mom and Dad in their mid/late 50 s. Successors in their late 20 s/early 30 s Have been trying to solve the puzzle for a while. Are focussed on each of the technical parts. Have been getting informed for a while. Relationships are getting strained. Dad s worried about tax, Mom s worried about relationships, inlaws worried about security, successor just worried about when. Nothing is happening although some parts of the plan may be completed while others are not. Wills out of date Successors have mastered farming but minimal or zero financial knowledge Introduction

17 Introduction Transition Planning is like getting from here.

18 Introduction Transition Planning is like getting from here.

19 Introduction To here.

20 Introduction To here.

21 The more you try to solve each problem. The more jumbled it becomes. It feels like you hit a brick wall. Its exhausting. Eventually more compelling, interesting or rewarding things take over and It gets put off again. Aka nothing happens In fact, complete silence may descend on the matter. Introduction

22 Rubik s Cube Facts (for a 3 X 3 cube): Possible combination: 43 Quintillion For those of you who like numbers that s: 43,252,003,274,489,856,000 Introduction

23 Rubik s Cube Facts (for a 3 X 3 cube): Fewest moves 20 (known as God s Number in the speed-cubing world). Introduction

24 Rubik s Cube facts (for a 3 X 3 cube): World record: Two handed seconds Introduction

25 Rubik s Cube facts (for a 3 X 3 cube): World record: One handed seconds Introduction

26 Rubik s Cube Facts (for a 3 X 3 cube): Blindfolded (yes blindfolded) a whopping seconds! Introduction

27 Rubik s Cube Facts - Summary : Possible combination: 43 Quintillion (43,252,003,274,489,856,000) Fewest moves 20 (known as God s Number in the speed-cubing world). Two handed seconds One handed seconds Blindfolded seconds! Introduction

28 What do all these record holders have in common? Aside from a gifted few who somehow instantly see the solution, the consistent Rubik s solvers use a process which they learn and repeat many times. You can learn the process but in your lifetime you will only have to solve the puzzle once. You only get one-shot at it. With so many possible combinations, so many moving squares you also need something else you need a team. Introduction

29 Succession is a Team Sport - The Transition Team A team that not only specialises in each of their respective colours (ie tax, insurance, law, relationships etc) If each specialist only worked on their own colour without reference to the others would they ever solve the puzzle? So they need to collaborate to solve your puzzle and serve the needs of your family. Who s in the team? Introduction

30 The Transition Team Who s on the team? You and your family Lawyer Accountant Estate Planner Wealth Advisor Insurance Agent Counsellor Therapists Family Facilitators Business Consultants Human Resource Consultants Introduction

31 And remember, just like the Rubik s cube Everything is connected to everything! Introduction

32 What does Rubiks teach us? 1. Start with the end in mind before you start solving the puzzle, moving the colours around, decide what you want the end result to look like. Introduction

33 What does Rubiks teach us? 2. Everything is connected to everything remember, every time you make a change in one place its going to affect other places, remember the 3 circles (Ownership, Business & Family)! Introduction

34 What does Rubiks teach us? 3. Holistic remember you have to solve this puzzle all at once, it is a single system, you cannot solve it one piece at a time or linearly. Introduction

35 What does Rubiks teach us? 4. Use the process which means either learn the process or use someone who follows a process. Introduction

36 What does Rubiks teach us? 5. Team Sport expect to use a team, expect to be part of that team and require the team to communicate. Introduction

37 Why is Rubik s cube easier than transitioning your farm? There is only one desired outcome with Rubik s cube all the faces the same colour: Every Farm Family has a different desired outcome what they want their cube to look like at the end (not necessarily 6 matching sides). If your advisors are going to stand a chance of giving you effective, consistent and implementable solutions then the first thing you need to do is to describe what your cube has to look like when its finished before you ask them to work on the solution. START WITH THE END IN MIND. Introduction

38 Decisions, decisions, decisions. The only thing for certain is one day you will transition and therefore its important to be well prepared to ensure a seamless transition that provides you the most security Above all you should avoid the inadvertentsuccession path which is littered with damaged relationships and failed businesses. Where most families seem to start is by trying to make all of these decisions they begin in what should actually be the final phase. Where are we now?

39 How do you eat an Elephant? The Answer: One Meal at a time (and invite many people over) and it s a set menu! In other words - break it into stages and use a team approach and a systematic process. That is the transition.smart approach Anyone who claims to be able to develop all parts of your plan by themselves will probably do none of them well! Where are we now?

40 THE THREE STEPS

41 WHERE DO WE WANT TO GO?

42 Your Dreams, Hopes & Inspiration Where do you want to go? Where would you live? How much money would you earn? How much free time would you have? Would you take vacation? How often? Where? For how long? Where do we want to go?

43 WHERE ARE WE NOW?

44 There is a common attitude amongst farmers when it comes to transitioning their operations that: If it ain t broke don t fix it The reality is: Maybe you have not looked hard enough By the time it is broken, it is too late to fix it Where are we now?

45 If we look at farm operations across Canada we see the following trends: Farm asset values have increased Farm debt levels have also increased Farm income experiences large fluctuations from one year to another Average Farm Debt/Asset ratio was 15.9% in 2007 Generally, farms cannot service Debt/Asset ratios greater than 40% without off-farm income This means that if you want your money out now and you want your children to continue to farm then you can only expect 40% of market value (and you have to clear the debt!) Where are we now?

46 Alternatively, you leave your money invested in the farm, sell your assets over an appropriate time scale, take enough out to live on and gift the remainder on death BUT, if retirement lifestyle is most important Sell the farm at market value, enjoy retirement, gift as much as you want while living and set up a will to distribute anything left over Where are we now?

47 Situational Analysis This is key to any ownership transfer what are we dealing with/where are we starting from? Calculate Net Worth as of today. Calculate projected income and cash flow of the farm for the next several years. Consider any potential income taxes! Is the farm/business financially capable of attaining the goals already defined. If not what has to change (the goals, the business or both) and by how much? Where are we now?

48 HOW DO WE GET THERE?

49 In Summary Team approach Start with the end in mind It s a process Invest the time You get one-shot at this get help Multi-disciplinary solutions for a Multi-generational legacy How do we get there?

50 The TransitionSmart Plan what s in it? There are many pieces to your puzzle (and your puzzle is unique). No plan is complete until it has considered (to name but a few in no particular order): 1. Retirement Plan (income, involvement, accommodation). 2. Business (viability, affordability, structure, tax). 3. Estate Plan (fair vs equal, tax, insurance) 4. Ownership Transition (tax, timing, wealth transfer) 5. Management Transition (control, labour) 6. Successor readiness (training, mentorship) 7. Contingency plan (The Five D s) 8. Communication (internal & external) Introduction

51 Retiree s future lifestyle Financial plan (annual living and relocation, if necessary) Address(es) Tax consequences Future retiree (non)involvement Estate Plan: Fair vs Equal Flexibility vs Straitjacket Inclusion and Communication A. Retirement and Estate Plans

52 Is the successor ready in every respect? Skills profile for successor Skill gaps Action plan for filling skill gaps Performance review & feedback process B. Training and Development Plan

53 Business viability can we afford this plan? How much money can we take out? How farm business will meet needs of successor(s) and retiree(s) Analysis of current farm business (if necessary) Plan for future direction of farm business & description of how this will affect business (along with projected financial statements) C. Farm Business Plan

54 Management of daily activities Daily roles, responsibilities, and authorities Outline of transfer of management, control, and labour Includes timetable for transition to successor(s) What are everyone s expectations here? D. Management, Control & Labour Plan

55 Outline of current farm business structure and change during transfer process Company, partnership or joint venture? Explanation of transfer of ownership of assets Inventory and valuation of assets & liabilities Future business arrangement Transfer mechanism Prenuptial agreement (if necessary) E. Ownership Transfer Plan

56 Tax implications and how to address them Required financing and sources Treatment of non-farming children Insurance requirements Copy of the will or overall description of intent to assist with ownership transfer plan Description of any other legal agreements E. Ownership Transfer Plan (continued)

57 What is going to happen and when and who is responsible for what? Timetable for start and finish of key activities Time frames for monitoring and measurement of progress (and amending, if necessary) F. Implementation Timetable

58 Who within the family needs to know what the plan is? Who outside the family needs to know? What s the process for communicating with them (call, , write, meet etc). Plan for ongoing family business meetings Communication and decision-making process Management and resolution of disputes and conflict G. Communication Plan

59 Identifies possible challenges to the plan THE FIVE D s: Death, divorce, disability, disagreement and disaster What will happen in such situation(s) Who will ensure contingency implementation Steps incorporated to mitigate risks Updates to contingency plan Easier to consider before rather than after the event. H. Contingency Plan

60 Want to know more? We are happy to discuss your needs with no obligation. That way we can answer your questions about what will we do, how long will it take and what will it cost. Just call Jonathan Small on: Cell: Office: H. Contingency Plan