From Legacy Moment eNewsletter (June 18, 2010)

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Paul Smith, a second generation dairy farmer in southwest Wisconsin, owns a large dairy herd and cheese processing facility. The operation is basically two separate units operated under the same entity structure -- a dairy farm and a cheese processing plant. Though the two units share common management personnel, office facilities and equipment, each unit is run as a stand-alone business with separate bookkeeping.

Paul’s son Steve and daughter Jan are both active in the operation. Steve tends the dairy and Jan enjoys the challenge of sales in the cheese plant. Each child currently owns 20% of the [combined] business, and Paul owns the other 60%. Though he plans to retire and transfer full control to his children, Paul knows, based on a history of merciless sibling rivalry, that Steve and Jan cannot work together.

Paul says, "Any plan that may transfer equal control to the children will not work, and I won’t consider any options that gives one child a controlling interest over the other."

With his specific goals in mind, and assuming Steve and Jan cannot work together, Paul may want to consider a 'split-off' -- essentially dividing the business into two separate and distinct business entities. Paul could transfer ownership in the dairy to Steve and ownership in the cheese facility to Jan. Assuming the business units are roughly of equal value, each child may feel empowered to grow their respective operation free of sibling rivalry.

The keys to success in planning for succession are well-defined objectives, clear communication and action. As long as a family can define common goals, agree on acceptable outcomes and work to achieve their goals they’ll find a solution to address most pressing objectives.

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Leading the Change - Legacy Project Workshops
The next series of Legacy Project workshops are scheduled for Lincoln, Neb., on July 20; Des Moines, Iowa, on July 21 and Champaign, Ill., on July 23. Sign up online or call the Farm Journal Events Hotline for more information: (800) 909-3681.