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For family business owners, our Comprehensive Succession SolutionTM includes planning for:
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Legacy by Design, LLC
Do you know the risk?
Succession is the watershed issue facing America's farmers, ranchers, and agribusiness owners!
“If a family has not adequately planned for succession, the farm is likely to:
- Go out of business
- Be absorbed by competitor
- Be converted to other uses."
(From the USDA)
Multigenerational success is difficult and rare. Evidence shows that most families don’t have a plan for succession and don’t know where to begin, or even who can help. Families often find themselves overwhelmed, and underprepared for a generational transition.
Far beyond legal documents and life insurance, a comprehensive succession plan includes provisions for ownership transition, leadership development, financial security, and the estate tax. Legacy by Design provides the information, tools, and resources necessary to plan for succession and prepare for a next generation of farming success.
What have you and your family done about succession planning?
By the time they contacted me, this well-intended couple was nearly to the end of their patience. As so many do, they’d been to attorneys, asked their accountant, and talked to the banker, but they couldn’t get any definitive suggestions about where to start planning for succession. They felt like they were running in circles, asking a variety of questions and getting an even bigger range of expert opinions---often about topics completely unrelated to their concerns.
What they really wanted to know was, “Based on our situation:
- Do the owners, the family, and the operation have the justification for succession planning?
- Do members of the family share common goals? If so, what are they?
- Are there any concerns that will unduly inhibit the family’s ability to implement a plan?”
Family meetings are relatively easy to plan. We suggest you follow an agenda and meet in a neutral location. Everyone, from grandparents to sons/daughters-in-law, should be invited to attend. Someone should keep notes and if possible record the entire event. Reading the ‘minutes’ of a previous meeting will save time, short-cut potential arguments, and encourage clarity. A family meeting allows all to hear what’s said, when it’s said, how it’s said, and in context.
The logistics of a family retreat, on the other hand, will be a bit more complex but may be worth the effort, given the additional time for meetings, combined with a variety of recreational and social activities. A retreat setting allows for more in-depth conversations about the topics that are important in succession planning. The foundation for a constructive family retreat may use the following outline:
- Build trust across the leadership team.
- Promote open communication and shared responsibility.
- Pull the team together around a shared experience.
Following our last retreat, the client family enjoyed the interaction and the shared experience has helped them to come together as a team, committed to preserving the family farming operation and creating a lasting legacy.
How many generations will be affected by the decisions you make?
This wasn’t the way they expected it to go. Back then, when they sat down to create the plan, everyone was all smiles and the family was sure the positive feeling would last forever. To them, it was a once and done. Oldest son was going to take over the operation, dad was going to begin stepping back, and inactive kids were to receive other assets. In their minds, it was: write the plan, pay for the legal work, gift the shares, put the binder on the shelf, and don’t give it another thought.
Now, nine years later, we’re meeting to triage a situation that’s gone from bad to worse. Son’s left the operation, moved his family, and taken a job in another town. We’re now charged with devising a plan for moving forward. It seems he wasn’t the right choice. Be it a lack of commitment or desire, it doesn’t really matter---the fallout is the same. Dad has to step back in, the family has to reacquire gifted shares, and the management team needs to redistribute roles and responsibilities.
Succession isn’t a once and done affair. You can’t tuck the paperwork away and hope it all works out. The planning process should be preceded by a thorough vetting. Each active person, parents and children, grandparents, nieces and nephews, should address the tough questions and know how to deal with difficult issues. In this case, the company was re-organized, the leadership team redefined responsibilities, and these well-intended parents encouraged their very capable son to learn by doing.
What they didn’t do was ask the right questions before bringing him on board. They didn’t ask about his real intentions, check his level of commitment, or test his resolve to succeed. The following questions would’ve allowed us to evaluate the situation more objectively and helped to ensure we were focused on more of the issues that may affect the outcome. So, before you bring in the next generation and offer them a management position, ask:
1. What has s/he done to prepare for a role in the operation, specifically related to education, experience, capital, capabilities, etc.?
2. As the current leader, am I prepared to mentor the next generation, offer guidance, and discipline as necessary?
3. Is the operation foundationally strong enough to withstand disturbance related to financial matters, personal issues, and management decisions?
4. How will the aspiring next gen leader respond to push-back from current employees, personal mistakes/missteps, less than acceptable results, and criticism?
5. What will s/he do to grow professionally and prepare to lead the organization? Specifically is s/he participating in continuing education, assuming a growing mantle of responsibility, doing more without being prompted?
6. How does s/he react to working overtime, putting in extra effort [without compensation], and picking up the slack for an ill/absent employee?
7. Does s/he obsess over finding a work-life balance or use ‘family time’ as an excuse for not participating in overtime and/or work related activities?
8. Do employees, third-party alliances, professional advisors, customers, and managers respect the capabilities of the aspiring next gen leader?
9. Specifically what characteristics does the aspiring next gen leader possess that assure you s/he is ready to assume the responsibility of leadership?
10. Specifically what characteristics cause you to pause and reconsider her/his ability to achieve success as a leader in the organization?
Finally, you must be ready, willing, and prepared to evaluate performance objectively and enforce consequences for unsatisfactory results. You should know how to deal with subpar achievement and/or transgressions unbecoming of your organization’s leadership. And, you need to make sure to offer adequate incentives and rewards for long-term success to non-family executives---especially as it may relate to mentoring the aspiring leader.
Remember, it isn’t as much about the opportunities offered to the next generation, as it is about what they do with them. The right candidate will rise to the occasion, grab responsibility, be prepared to generate results, and make meaningful contributions. Planning for succession is merely the act of bringing the owner, the operation, and the family together to achieve common goals and prepare the farm to continue endowing the family for generations to come.
May I help you address the challenges and opportunities of planning for succession?
Transitioning the family business from one generation to the next is a natural next step for a thriving operation. It removes uncertainty, provides opportunity, and creates a lasting legacy.
But, multigenerational success is difficult and rare. The process isn’t easy, and the path is not always clear. At Legacy by Design we provide succession solutions to clients across North America, through individuals who have earned certification as a Legacy Certified Advisor. As a financial planning-first organization, our financial advisors and backroom technicians collaborate to deliver quality results.
At Legacy by Design, we engage consumers in experiences that encourage action and generate results. We provide a depth and breadth of education for succession planning to both consumers and professional advisors.
Back in 2005, Kevin wrote Legacy by Design: Succession Planning for Agribusiness Owners. In 2008, he helped launch the Farm Journal Legacy Project, the largest succession planning initiative ever in the ag community. And in 2011, the Legacy Project won the prestigious Grand Neal Award for excellence in business journalism.
Before Legacy, Kevin spent 20 years with State Farm Insurance as an Agent, Agency Manager, and Agency Field Consultant. His career has always centered on serving others. With State Farm, Kevin worked to help families towards achieving financial security. See Kevin's full CV here.
Hometown Service from Coast to Coast
Legacy by Design provides succession planning services to clients across North America through individuals who have earned certification as a Legacy Certified Advisor by Legacy by Design. Though independent, each Legacy Certified Advisor adheres to our financial planning methodologies and works as part of a team to plan for each client family. Every Legacy Certified Advisor must pass a rigorous application and certification process, which includes:
- Advanced professional designations, to include but not limited to CFP®, ChFC®, CLU, CPA, JD.
- A minimum of 10 years experience in a professional discipline serving family business owners.
- An understanding of and appreciation for the rural lifestyle.
- Appropriately licensed/registered for financial planning.
- Participation in Legacy Certified Advisor training, attend regular conference calls, contribute in advisor case research, and share best practice experiences.
- Maintain the highest level of client satisfaction.
- Follow Legacy by Design’s Comprehensive Succession Solution.
- Act in a professional manner and with uncompromising integrity.
What particular issues most concern you about your succession intentions?
Five years ago, they contacted me intent on bringing their son into the farming operation as an owner. He had a desire, the education and experience. They had a need. The operation was growing, demand was increasing, and the neighbor wanted to sell. “So why not?” said ‘dad’ enthusiastically. And besides, “Isn’t that why they call it a family farm?” chimed in ‘mom,’ obviously motivated by the thought of them all working together.
After some preliminary work, family meetings and cursory assessments, my team and I advised against the move. From our vantage point, we saw things the family chose to ignore. There was a collection of reasons why, but most came down to a lack of respect and an outsized ego that wouldn’t allow their young prodigy to work with his father. Though not all the son’s fault, these well-intended parents were willing to overlook the obvious. They wouldn’t acknowledge the undercurrent of animosity. They knew in their hearts that over time he would come around and recognize the opportunity.
But that was then. Recently they called to confess it isn’t going to happen. After years of trying they finally realize the concerns we shared way back then are real and to dad’s credit, he acknowledged, “Problems don’t just go away…” Beyond recognizing that our systems work, as aging agripreneurs with a growing operation they wanted to know, “Where do we go from here?”
The initial steps in planning for succession can be difficult. The path is not always direct. And, though the process is based on generating specific results, the exact outcome cannot be known at the outset. You can set very specific and measurable goals but, if you don’t have the foundation for a productive relationship, it’s probably not going to work. In spite of evidence to the contrary, this family plowed headlong into fulfilling a want, without first analyzing the undercurrents of an already tense situation.
It’s cliché to dismiss a lesson as hard-earned; however those oft repeated statements are borne of bad experiences. Succession planning works. The process will help you achieve your goals and allow the farm to continue to endow the generations to come. By design, a viable solution is based on the common goals of the family. The keys to planning success are to:
- Follow a proven planning model and a defined process – this is the road map that leads you on the journey to your goals.
- Acknowledge and overcome the obstacles that all families face – the list is long, but there are solutions if you’re willing to talk about equal versus fair, in-laws, control, conflict, etc.
- Focus of common goals – all can agree to first do no harm, make the operation stronger, ensure financial security and prepare the next generation to lead.
- Practice good communication and learn to listen – we’re all good at waiting to talk, but learning to listen, acknowledging others and reacting appropriately is a skill that must be practiced.
- Commit – because it is difficult and the path is not always clear, you must be willing to continue no matter what. With everything on the line, succession may be the most important commitment you’ll make…
Have you previously engaged a firm and become dissatisfied with your progress?
Over 10 years ago, a number of equipment manufacturer representatives responded to my request for their respective dealer standards for succession planning. Though, wisely, none would commit to endorsing an individual plan, each was more than willing to share their guidelines. Since then, I’ve been creating materials and building tools to better serve the succession planning needs of farmers and agribusiness owners. I’ve counseled families, guided business owners, and facilitated workshops based on much of the intelligence gleaned in those early days. Now in a very small way, maybe I can give something back---something of value for both dealers and manufacturers alike.
Every entrepreneur knows success is no accident just as failure is never the intent. Most family business owners spend a lifetime building a business; they invest money, blood, sweat, and tears. Business owners sacrifice family time, personal relationships, and their own health. They forego hobbies and individual interests in the pursuit of something bigger, better, stronger, and faster. So why not devote some time to planning an exit strategy? If the ultimate goal is providing financial security into retirement and financial resources that will continue to endow your family for generations, then each successful business owner should implement a comprehensive succession plan.
A good plan is based on clearly defined objectives. These well-defined and measurable goals will guide your planning efforts, focus your attention, and encourage you to measure the results. A comprehensive succession plan is far more than some legal documents and life insurance policies. A comprehensive succession plan should help you:
A. Improve the integrity of the operation by ensuring that ownership is not shared between active and inactive owners.
B. Enhance the financial security of each owner and active family member by anticipating and preparing for the transition.
C. Prepare the next generation for leadership by providing the right leadership structure and professional development opportunities.
But rather than explain what a plan isn’t, it may be easier to suggest the following dealer standards for succession planning:
1. Management / Ownership Transition – Terms and conditions for an ownership transfer. Providing for a smooth ownership transition and maintaining a continuity of management strengths are the focus, including:
- Seamlessly transitioning management and ownership.
- Maintaining a strong presence in the market.
- Retaining key employees and attracting qualified candidates.
- Continuing market development and increasing sales.
- Stimulating a loyal following and appealing to new customers.
- Reviewing and refining leadership structure and operating agreement.
- Generating and reinforcing a succession culture.
- Encouraging professional development to improve bench strength.
- Growing capabilities and increasing opportunities in the market.
- Preparing written professional development plans for each leadership position.
3. Financial Security – Project current and future cash flows to measure the effects on each interested and involved family member. Good financial management is imperative for lasting security, including:
- Measuring current and future cash flows.
- Managing debt and improving financial returns.
- Implementing contingency plans for death, disability, divorce, and dissolution.
- Reviewing and refining retirement plans to meet specific goals.
- Communicating appropriate financial goals and results with management team.
4. Estate Planning – An efficient estate plan is designed to maintain the family’s financial security, plan for equitable distributions, and mitigate the estate tax liability, including:
- Not unnecessarily triggering the estate tax.
- Utilizing proven estate tax reduction techniques.
- Devising a contingency plan to provide financial security.
- Coordinating succession strategies with personal estate planning efforts.
- Safeguarding the operation[s] from disinterested and inactive owners.
Beyond succession, but closely related and highly instrumental in creating lasting success may be additional elements of a well-rounded business. Does your dealership invest time in creating and reviewing your business plan? Does your agribusiness participate in community activities that promote our profession and introduce consumers to the ag industry? Do you, as an owner, lead by example and encourage your employees to invest in family time, spiritual health, and personal interests? Do you conspire with your customers, men and women in the farming community, to form a united front in the environmental/regulatory challenges of the day?
It’s all part of being a business owner. The responsibilities are great, but the financial rewards and professional satisfaction should even be better.
Why Legacy by Design, LLC?
- Bring creative design to your succession planning efforts, including your ownership transition, financial security, retirement options, and estate tax strategies.
- Coordinate with your other advisors, such as your accountant or attorney, to help ensure cohesive and comprehensive wealth creation and preservation strategies.
- Serve as a catalyst for achieving your family’s financial security and succession planning objectives.
- Engage in long-term relationships, which respect your confidentiality.
- Provide alternative solutions to help you make informed decisions.
- Assemble the core resources you need to protect and preserve your family’s financial security.
- Successful farmers, ranchers, and agribusiness owners who seek to grow wealth and expand opportunities which may endow the family for generations.
- Self-driven agripreneurs who do not have the time or expertise to manage their family’s financial security and develop a next generation leadership structure to assume control.
- Family business owners who are experiencing a gap among the services offered by traditional advisors and desire comprehensive and coordinated solutions.
- Entrepreneurs who want to develop a strategic plan to build a better future, and establish the foundation for a better business – today and tomorrow.
Legacy by Design, LLC
Succession and Financial Planning for Family Business Owners. Kevin Spafford, CFP®
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