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Family Business Matters 02/28 11:15
When Succession Means Splitting Up
Circumstances may make it beneficial to end an operation rather than
struggle in the future.
By Lance Woodbury
DTN Farm Business Adviser
In the course of planning for the future of the family business, there are
sometimes reasons to consider splitting up. While no one likes to talk about
ending a multigenerational enterprise, it may be necessary. If that becomes the
case, then "ending well" should be a primary goal.
REASONS TO SPLIT UP
Here are some reasons it may be time to split up the family farm.
-- Lack of successors. In rural communities and agriculture businesses, a
trend has been for members of the next generation to move away. Community
amenities, labor demands, risk management and capital requirements for a farm
or ranch are just a few of the reasons the next generation sometimes chooses to
work elsewhere or live in a more urban environment.
-- Different visions or goals. Sometimes, family members working together
have different visions of what the future should look like. Disagreements about
business growth, debt, employee management, roles or financial distributions
can lead family members to decide that pursuing goals separately is a better
option.
-- Tax strategy. In some cases, family members are in business together
because the preceding generation minimized its estate tax risk through the
creation of partnerships or corporations, requiring siblings or cousins to
become owners together. Family members did not willingly choose to be business
partners and thus may be ready to go back to being just a family.
-- Growing apart. Family members often come back to the business and help it
grow by expanding different enterprises, for example, crops, livestock, ag
retail, grain storage or custom work. Such divisions of labor can lead to
businesses that are in a better position to stand alone, and occasionally, not
desire to maintain a relationship where land, labor and capital are shared.
PLANNING STRATEGIES
Regardless of the reasons for ending or splitting up the business, there are
some strategies that can help with the planning.
-- Agree on the pros/cons of your current course. Since ending or splitting
up a business is a significant change from the past, make sure everyone
understands the reasons for the change. Taking time to talk about demographic
and economic realities, or jointly admitting you have different goals, helps to
frame the future as a joint problem to be solved.
-- Articulate different courses of action. All family businesses, while
sharing similar challenges, have a unique history, culture and family dynamic.
Your future path and specific strategy for splitting up should take into
account these particular dynamics. Use advisers who will seek to understand
each person's interests and goals so a solution might be crafted that meets as
many people's interests as possible.
-- Manage your expectations. A good agreement to split often means finding
solutions everyone can live with (their "interests," as mentioned above) versus
finding solutions everyone wants. Every individual needs to give a little to
find a solution that works well for the whole group.
-- Keep the process moving. It often takes decades to create a unique
farming and ranching business and culture. Splitting up does not happen
overnight, and depending on the size and complexity of the business, it can
take months or years to unwind, particularly when you consider the income tax
ramifications. Commit to continuing meetings that identify the next steps to
move forward.
Choosing alternatives to succession -- splitting up -- is not failure.
Instead, failure is splitting up in a way that hurts one another and drains the
family's equity on legal fights. A collaborative, consensus-driven process to
end well can serve family relationships for generations to come.
**
Editor's Note: Write Lance Woodbury at Family Business Matters, 2204
Lakeshore Dr., Suite 415, Birmingham, AL 35209, or email lance@agprogress.com.
(AG)
Copyright 2020 DTN/The Progressive Farmer. All rights reserved.
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