FFVA trade associate member Rehmann (rehmann.com) has provided the following article as a special to the Harvester. Rehmann is a fully integrated financial services firm of CPAs and consultants, wealth advisors and corporate investigators dedicated to providing clients proactive ideas and solutions to help them prosper. The firm’s cross-functional team approach gives clients direct access to a professional in any available service. Rehmann is ranked as the 30th largest firm in the United States, with nearly 800 associates in Michigan, Ohio and Florida. Rehmann is an independent member of Nexia International, offering clients a global approach.
Rehmann serves nearly 100 companies in the agribusiness sector, representing a broad range of businesses, including family farms, cooperatives, food manufacturers and distributors, wineries, orchards, retail grocers, nurseries, food packaging plants, processors, and agricultural crop production. Agriculture and food processing specialists from our assurance, tax and consulting divisions make up the Rehmann Agribusiness Industry Group. This cross-functional group receives industry-specific training and devotes the majority of their time to serving the agricultural industry. Rehmann maintains a national and local presence in industry associations to stay informed on issues impacting our clients. Rehmann’s industry experience enables them to assist your management throughout the year with multiple issues including qualified versus nonqualified patronage allocations and unit retains; patronage versus non-patronage activities; and financial reporting nuances of an agricultural co-op.
Transferring the Family Farm to the Next Generation
Through decades of working with business owners, I have seen many become so overwhelmed by the prospect of transitioning their businesses that they fail to do the necessary planning. As a result, the multiple options available to them often shrink to only a few.
When you consider the outcomes of this momentous decision, it’s clear that all options should be explored. As we work to design transition plans, some of our key objectives include:
- Ensuring that parents have plenty of money to support a comfortable lifestyle in retirement
- Providing a process for choosing and grooming one or more successors that will protect and build good relationships among the management team
- Allowing parents to create a transition “story” they will be proud to share. . . .the tale of how they did it all their way, and with tremendous success
In addition, there are many leadership and financial considerations that can make the difference between a successful and not-so-successful transition of ownership from one generation to the next. This article is intended to provide the reader a clear idea of what’s involved, along with a big picture view of the transition planning process.
What’s involved: Balancing needs of the generations and the business
Completing a successful ownership and leadership transition involves balancing the needs of the lead generation who will be exiting the business and the needs of the next generation who will perpetuate the business. The needs of both have to be further aligned with keeping the business in good financial health so as not to “kill the golden goose.”
To achieve these goals, there are several questions that must be considered:
- When and how would the parents like to phase down their day-to-day involvement in the farming operation?
- What are their income/cash flow needs post-retirement?
- Who do they see as the successor leaders and what grooming still needs to occur?
- Are they prepared to step into bigger roles?
- What kind of talent will they need to hire to fill in the gaps as their parents exit?
- What are their income expectations as they assume the roles of their parents?
- Are they committed to expanding their business and leadership skills to ensure the continued success and growth of the business?
- Is there sufficient cash flow to continue reinvesting in farm assets to keep the farm competitive while also funding a buyout of the lead generation?
- How should the organizational structure be modified to best take advantage of the skills of the next generation of leadership?
- How will the transition plan be shared with key employees and customers to ensure a smooth, stable transition?
These are very tough, emotional questions to address without some assistance from your business advisors. Getting the answers “right” requires time to contemplate and analyze the options. A knowledgeable, trusted advisor will present a number of alternatives for your consideration and help guide you to ensure that a solution is tailored for your specific situation. An overview of the process we use with clients in developing plans that address both the human and financial aspects of transition is included below.
As this diagram indicates, we start with a big picture look at the business’ vision and strategy and extensively involve both the lead and next-generation family members to build consensus on the best approach. Advisory skills that are important to the process include expertise in leadership and organizational development, tax and financial planning and, most importantly, experience in working with family farming operations. These skills are augmented with insurance and legal advice as required along the way.
Given that transition planning is a process, you can get started by contemplating some of the questions discussed above and begin formulating a vision of how you might like to proceed with our transition process.
For more ideas and information, contact Ross Cotherman in Vero Beach at email@example.com or 772-234-8484.