From the September issue of Drovers CattleNetwork.

Continued from, "Ranch succession-planning series: Seven keys to succession planning, Part I"

4. Build trust

“Trust goes both ways,” says Dave Specht, founder of Advising Generations LLC, and author of the new book, The Farm Whisperer — Secrets to Preserving and Perpetuating Farms. “The next generation has to trust that the senior generation is going to allow them to grow, make meaningful decisions and develop the operation. On the flip side, the senior generation has to be able to trust the younger generation with their financial life, because in family business it is all tied together. The younger generation’s salary and the older generation’s retirement can all be dependent on the viability of the business. Without trust, the entire process breaks down.”

However, forging trust is a delicate matter. For younger generational-ranch stakeholders, Specht urges them to step up and start looking at the ranch as an owner, doing things as little as picking up trash and taking pride in the operation's appearance.

“They need to start doing things that they wouldn’t ordinarily do unless told to do so by their parents,” he says. “The younger generation needs to develop an attitude of ‘I’m going to become a steward instead of being told what to do in every aspect of improving the operation.’

“As for the senior generation, be focused on raising a generation of owners, rather than a generation of farm hands — that makes all the difference in the world,” he says.

Another way to build trust between generations is knowing the respect for the operation is shared. When working with family businesses, Specht assigns the younger generation to research the history and story of the family, and then present it to the ranch stakeholders.

“It has always been a positive exercise,” Specht says. “Watching the faces of the parents as their children tell their story is very rewarding. It also forces them to have conversations and build positive relationships as they talk to multiple generations in their family to learn the history.

“For the younger generation to be set up to verbalize the thankfulness they feel toward their parents and grandparents for the sacrifices and life work they put into building the family operation — that’s a powerful way to build trust.”

5. Personal resilience

Possibly one of the most telling traits in the future success of a family business is the amount of personal resilience the next generation possesses and their patterns in handling stressful situations, Specht says.

When they have something that is difficult, do they focus in and take care of business or retreat? Do they repeat the same mistakes multiple times? Are they willing to overcome obstacles? And if so, is it draining or exhilarating?

“It should not be assumed that everyone in the next generation should be an owner,” Specht explains. “For example, say you have two sons. One is very resilient and hardworking; the other is lazy and careless. If the lazy son is not held accountable, then the resilient son will be more apt to leave.”

In situations like this, Specht recommends the senior generation reverts back to drawn-out job descriptions to hold the second son accountable (as discussed in Part II: Compensation and Responsibilities). He urges owners to separate the multiple hats they wear between being a parent and being a business owner. In some cases, Specht’s clients have physically brought two hats with them for job reviews and put on one hat to talk to the younger generation about work performance, and then put on the other hat to talk to them as a parent.

But what happens when the lazy son is not held accountable and rides on the hard work of the resilient son?

“It’s up to the resilient son to decide if he is willing to operate as an equal partner to a less-contributing partner,” Specht says. “He needs to be open to his parents, but respect their wishes, being nonthreatening in deciding whether to stay or go.

“Another thing to consider is that the resilient son can offer to come in as more of a risk owner. It is a good filter because risk is something the lazy son will probably not be willing to step up to,” Specht suggests.

6. Retirement/investment planning

Just like there isn’t a single operation in the beef industry that operates exactly the same way in terms of day-to-day practices, there isn’t a single operation that has a retirement plan set up exactly the same.

Whether owners are planning on selling to the next generation, continuing to live on land or a different strategy entirely, a game plan for retirement needs to be formalized immediately.

“A very unpopular but crucial question to ask is if the senior generation wants to take on a diminished role in the operation at a certain point, allowing the younger generation to become the main managers,” Specht explains.

“It’s important for families to plan together to reach a conclusion on a specific timeframe in which the reins will be handed over. That way, the younger generation has a good perspective on how to gradually obtain the proper skills for the complete transfer.”

The second part of the equation is for the senior generation to figure out how much money they are going to need for retirement. Start by keeping track of all expenses, separating them into specific categories — such as groceries, health care, utilities, travel — to form a baseline.

“If owners have not already been doing this, I advise them to base it off of their recordings for at least three months,” Specht explains. “Then they need to start digging into questions such as: Where does the cash flow come from? Is it expected to come from the business practices of the next generation? How are you going to create the cash flow?”

7. Key non-family employees

Last, but not least, key non-family employees need to be considered by producers who rely on their loyal services. Specht says often it is non-family employees who have been on the operation for much of their careers who help hold everything together while the family completes the transition process.

“It’s essential to communicate with them what the future holds, because if they are unsure, they are not going to stick around,” Specht says. “The younger generation also needs to make an effort to build a strong personal and professional relationship with key non-family employees, because oftentimes, their loyalty is with the older generation.”

It is important that the younger generation views these vital employees as peers and not as the help, taking time to learn from them and earn their respect as they work their way up in the business.

Click here to read, "Ranch succession-planning series: Seven keys to succession planning, Part I."

Click here to read, "Making room for the next generation."

Click here to view the entire series on the ranch succession-planning series resource page.