Bringing family members into the operation without a solid plan can lead to disaster
Though it is tempting to turn your farm operation into a family business, bringing family members in without a solid plan can lead to disaster. Jolene Brown, family business consultant, says that understanding how to manage both family and business can put you on the track to success.
“In agriculture, we are superior at production,” Brown says. “Today, we are going to focus on the people inside agriculture.”
Instead of waiting until things are at the breaking point, Brown encourages farmers to get their businesses in working order sooner rather than later. Getting things done when times are good allows you to have the tools needed to deal with things when times get tough, she says.
When it comes to breaking apart a family business, Brown points to four major mistakes.
1. Assuming all genetic relationships equal good working relationships
Brown says acceptance in a family should be unconditional, but acceptance into a business should be conditional and is not a birthright. There should be no assumption from any family member that he or she is entitled to any share of the land or the wealth unless it's earned.
A family business is also not a place to rehabilitate a family member. If he or she cannot hold a job elsewhere, Brown says, why should he or she get a paycheck from you?
“You and I tolerate stuff from family members we would never tolerate from any other employee,” Brown says. “Here’s why: we have moms and dads bringing in the kids instead of leaders and managers hiring really good employees. As a business, we have to have leaders and managers who hire the right employees, and the leaders have to be the right leaders.”
Brown emphasizes that she isn’t discouraging farmers from bringing their children or in-laws into the business, or giving the business to them, but rather to think critically about who the best person would be to take over. Thinking about what traits, education, experiences, and personality is needed to make the farm a success is more important than just handing the leadership to the oldest son.
2. Believing the business can financially support any and all family members who want to work together
As family members begin to ask to join the family business, farmers have to ask if it’s really feasible to pay all of them. Brown says when you are considering bringing any new employee on board, check your business’s financial ratios to see if you are financially capable of paying them.
“Do not bring somebody into a financial mess and expect them to fix it,” Brown says. “As you hire people, make sure their salaries and compensation packages fit into the cash flow, not the net worth. Nobody says, ‘I’m going to sell off an acre or reduce the herd so I can pay you.’ You make sure that as you bring people in it fits into the business cash flow.”
3. Assuming others should change, but not themselves
Once you make the choice to be a leader of an operation, Brown says, you are no longer independent. The No. 1 job of a leader is to replace himself, which requires compromise.
“If you told me you want the business to continue, it is an intentional choice,” Brown says. “You are not independent. It is not your way. It is multiple ways.”
4. Presuming a conversation is a contract
Just because something has been promised to you verbally does not guarantee it legally. If it is not in writing, it doesn’t exist, Brown says. When working in any business, not just a family one, it’s imperative you get everything down in writing with signatures. From general financial statements to job descriptions, keeping things in writing clarifies everything.
Brown suggests that good businesses, regardless of how close the family behind it is, should not rely on hope and good faith promises as a business strategy, as it is a large risk that can be avoided.
“How many years of blood, sweat, and tears are you going to put into the business?” Brown says. “Hoping things will figure themselves out. Hoping things will go the way we want. Hoping the business can continue. Hope is not a good business strategy.”
10 Tools for Success
Brown suggests farmers develop the following 10 tools to help create a successful foundation for their family business now and when they begin to transition. Meet with family members to discuss, alter, and sign them to confirm everyone is in agreement.
1. Mission Statement. Who are you? What is your business, and what do you stand for? When a consumer buys from you, what should they expect?
2. Business Plan. What is the structure of your business? Who reports to who? What parts of the business are reliant on what? What are the goals this year? What are the finances and the succession plan of your business?
3. Questions for those wanting to join the business. A list of questions and education, experience, and personality standards for family members who want to join the business must meet.
4. Managing People. Who is responsible for what in the business? What is the breakdown of responsibilities and how do they change as leadership shifts?
5. Code of Conduct. A list of rules and expectations all members of the business are expected to follow, signed upon their hiring.
6. A “Contract” to Communicate Clear Expectations. A document that outlines intrabusiness communication expectations and best practices for communication.
7. Conflict Resolution. What are the best ways to diffuse a situation? How can you solve a problem calmly and efficiently?
8. Evaluation Conversation. How can employees improve? Where have employees done well? How can you communicate that to them in an appropriate manner?
9. Prerequisites for Ownership in a Family Business. What qualities does a family member need to possess to have a stake in the family business?
10. Buy-Sell Agreement. A legal document outlining the rules for asset valuation and transfer of ownership. This overrules a will.