Family farms — nearly all of us — are a unique group of businesses. In most arenas, you no longer have the opportunity to take over only because of your blood relation to the current owner of an asset. The Economist reports in two November 1 articles, “Relative success” and “Business in the blood,” that family businesses were in retreat for much of the 1900s — and it’s likely that many of those were farms.
But now, that trend is slowing. Within the Fortune 500, family firms grew from 15% of the top 500 companies to 19% in 2014. Those stats are from consulting firm McKinsey, which defines a family firm as those where families have the largest stake — at least 18% — and ability to appoint the CEO. While the growth is partially due to family companies with large holdings in developing countries, The Economist points out that the American trend has slowed, and in Europe 40% of large listed companies have family ties. But it’s also true in South-East Asia (85% of $1 billion companies), Latin America (75%), India (67%), and the Middle East (65%).
Whether it is Ford, BMW, Samsung, Fox, Walmart, or Comcast, most of us cannot go a day without utilizing a big family brand. All these companies have survived the passing of the torch from generation to generation, maybe due to better training of heirs as we watched so many of them fall apart in the last century.
Giving up the reigns< Not a week goes by until I am talking to another excited, young, dairyman or dairy woman working under or in partnership with family. As uncomfortable as it is, I now try to ask every single one that one question, “How is your farm transition plan coming along?”
Most of the time, the answer I receive is not the one for which I am looking.
Sometimes, the next generation can proudly report they are in the middle of transition meetings or have a complete plan in place to help ease the financial and management burdens when they take over. But those answers are rare.
More common, I learn at least one of three things:
Dad (it’s usually dad) doesn’t want to admit that he is going to die<
We have talked about it, but nothing is formalized
Dad won’t let go of any day-to-day management decisions, much less big picture thoughts, and doesn’t tell me if or when that day might come.
While I am also running into great farmers that are turning to non-family heirs, family always has advantages. Two family advantages mentioned in the articles are two stereotypes of farmers; familymanagers are frugal and think about the next generation instead of the next quarter of results. Their biggest disadvantage might be the lack of thinking about death.
Make a plan
Odds are, there will not be many years like 2014, so if you have extra capital it might be a good time to invest it, and some time, in creating a plan. Family firms and farms hold big advantages in that the future owners’ name is literally on the line, and with a good plan we have a leg up on making it another generation.
If you have read any agricultural publication in the past 5 years, you have probably read about a transition plan. Like my examples above, many farms do not have one, but farms are not alone. Professional services giant PricewaterhouseCoopers found that only 16% of family firms have a formal succession plan in place. Like it or not, at the current rate of science it appears we are all going to die, some day. If you don’t decide what’s best for your heirs, the law will do it for you.
Be better than average. Or in this case, at least be better than 1 in 6.