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When to Bring in a Business Advisor

Nov 19, 2018 04:59 PM
Constributing author: RoLynne Hendricks, Partner
Originally written for and published by Progressive Dairyman
 

“Family quarrels are bitter things.  They don’t go according to any rules.  They’re not like aches or wounds, they’re more like splits in the skin that won’t heal because there’s not enough material.”

F. Scott Fitzgerald

 

A family business can provide incredible opportunity to the founding generation and to successive generations.  However, in our time consulting with family owned and operated dairies, we have seen many instances where the business irreparably damaged the family relationship.  This is truly unfortunate as this does not need to be the case.  Furthermore, study conducted by the Family Business Consulting Group shows that 30% of family businesses make it through the second generation, whereas 10-15% and 3-5% make it through the third and fourth generations, respectively.  This is a difficult statistic to deal with when so much effort has been invested in making the business successful.  By understanding when to involve a business advisor you may be able to avoid damaging conflicts and maintain the familial harmony that brings so much joy to life.   

Through our experience working with dairies, we have seen many different organizations incorporating many different management styles.  Although an advisor should be consulted in many instances, we would like to highlight two critical areas where it is imperative to retain an advisor.  These are: 1) when a generation wants or needs to either join or exit the business; and 2) when there is a lack of clarity in the organization regarding the direction the organization should go and who should be in which position of leadership.     

Multi-Generational Management

Business problems tend to begin with the founder and compound through successive generations.  Entrepreneurs are risk takers, hard workers, and exhibit a disciplined dedication to all things business.  Often times they sacrificed personal comforts, wants, and desires to become successful.  When successive generations are brought into the business, they rarely have the same emotional attachment to the business or understand what the founder has seen, tried, experienced, or suffered through.  The new generations may have ideas that, they are sure, will revolutionize the business and make it modern and more profitable, while Dad, Mom, Grandpa, or Grandma may have become cautious in order to maintain what they have shed blood, sweat, and tears over to ensure they leave a legacy for generations to come.  Although both mindsets should have a place in the organization, there needs to be mutual respect and understanding between the parties.  

Passing the Baton

When bringing in a successive generation prior to the exit of another generation, personality, education, goals, aspirations, leadership capabilities, and financial expectations should be assessed to ensure the correct individual from the successor generation is stepping in to the correct area of responsibility.  The first born does not necessarily need to or often should not lead the business.  Equally, entitlement felt by successive generations should not determine either the position held or the amount received from the business.  What is good for the business needs to come before the sensitivities of family members.  

Successful businesses have very clearly defined roles and positions for each member of the organization.  Each seat on the bus is occupied by an individual with specialized skills and personality to excel at their assigned task.  While this may seem intuitive, family operated businesses have strong forces pushing against this type of management style.  Family members may feel entitled; a parent or grandparent may want to help a struggling child or grandchild; or management may not have the resolve to tell a family member that they will either not be hired, let go, or required to change positions.  An advisor will be able to assess the personalities, skills, and education of each family member and determine where they best fit for the ongoing success of the business.  

One example is of a local bike store.  The owner had five children; three boys and two girls.  Neither of the girls were interested in owning the business, however, each of the three boys expressed interest.  The oldest son was educated as a nurse, never rode a bike unless he had to, and wanted the business for the lifestyle it could provide.  The second was an avid biker, had a relevant college education and work experience, and wanted the business for all the right reasons.    The third son was too young at the time of transition to be considered.  Thankfully, the father chose to let the second son purchase the business despite strong opposition from the oldest son and his wife.  

While this is a simple example as there was only room for one son in the business, the principle applies to all organizations.  Make sure the correct family member is in the correct seat regardless of personal desires, birth order, or other arbitrary qualification.  A business advisor will be able to approach the situation objectively and provide a business based recommendation.  

Decision Execution

Unfortunately, we have seen businesses continue to struggle after retaining an advisor due to both ineffective execution and failure to execute the plans created during the consultation.  Buying a self-help book and keeping it under your pillow hoping to improve will do absolutely nothing but give you a kink in the neck and less money to spend.  An advisor should provide ongoing consultation to ensure the business effectively implements the plan.  This will provide motivation to and demand accountability from management, helping to ensure the changes decided on are actually implemented.  Make time, set aside resources, and commit the effort to execute and implement the plan correctly, otherwise, the experience will leave you frustrated and with less money to spend.  

Clarity

Clear and effective communication takes both a speaker and a listener, and each, individually, need to perform both functions.  Emma Thompson once stated: “any problem, big or small, within a family, always seems to start with bad communication.  Someone isn’t listening.”  Bringing in a business advisor provides the business the opportunity to have all opinions and viewpoints expressed.  This brings clarity to the goals and aspirations of all generations, paving the way for a comprehensive plan that will help the business operate healthily and smoothly.  This process incorporates the caution and desire to provide of the older generation with newer technologies and operational efficiencies that the newer generations want to implement.  

If a business doesn’t evolve with a changing environment, it will become stagnant and die.  However, evolving too quickly or without adequate restraint will kill a business just as quickly, if not more so.  A business adviser will be able to bring clarity to an organization by saying what needs to be said to help each generation understand what is best for the business.  Focusing efforts and resources, making sure leadership is pulling together and in the same direction, and setting forth a comprehensive plan that takes the business from the start-up, first generation stage into a sustainable business model.

Conclusion

Working with family is not easy, and many organizations put family sensitivities before the business, ultimately damaging both the business and the family relationships.  However, if managed correctly and guided by an outside adviser when bringing in successive generations or when clarity is needed, a family business can provide incredible fulfillment and satisfaction.  More importantly, ensuring your business has good leadership and an actionable development and succession plan that will actually be followed will help ensure your business does not become a statistic.        

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2018 Ag Seminars

Brooke Eppa
Dec 19, 2017 10:50 AM
2018 AgKnowledge Ag Seminar
 
 

Seminars hosted by Cooper Norman

Pocatello – Friday, January 19th  

Twin Falls – Tuesday, January 23rd

Idaho Falls – Thursday, January 25th  

  

Get your operation future-ready with this half-day seminar:

  • 2018 Tax Update
  • Industry Panel with discussion on current industry issues and Q&A audience participation portion
  • And more
   
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2017 AgKnowledge Seminar

Brooke Eppa
Dec 16, 2016 05:05 PM
AGKnowledge Seminar Logo
 
 
AgKnowledge agriculture seminar image
 
You can register through Eventbrite or call Malinda in our Idaho Falls office at 208.523.0862 for questions or to register over the phone.
$25 per person or $50 per farm (lunch is included)
 
All locations listed below will be in the state of Idaho:
 
 
Pocatello - Tuesday, January 31, 2017
 
Twin Falls - Wednesday, February 2, 2017
 
Idaho Falls - Thursday, February 3, 2017
AgKnowledge future planning
 
 
 
AgKnowledge Agriculture seminar header image
 
 
 
Itinerary posted here soon
 
 
 
 
 
AgKnowledge agriculture business seminar
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2016 AgKnowledge Ag Seminar

Brooke Eppa
Dec 1, 2015 06:10 PM
AGKnowledge Seminar Logo
 
 
AgKnowledge agriculture seminar image
 
You can register through Eventbrite or call Malinda in our Idaho Falls office at 208.523.0862 for questions or to register over the phone.
$25 per person or $50 per farm (lunch is included)
 
All locations listed below will be in the state of Idaho:
 
 
Pocatello - Tuesday, January 19, 2016
 
Twin Falls - Friday, January 22, 2016
 
Idaho Falls - Friday, January 29, 2016
AgKnowledge future planning
 
 
 
AgKnowledge Agriculture seminar header image
 
Itinerary
 
Sign in and registration
9:45am - 10:00am
 
Topic 1 - Tax Update
10:10am to 10:55am
 
Topic 2 - Strategic Planning and Retreats for Business
11:05am to 11:50am
 
Lunch
11:50am to 12:20pm
 
Topic 3 - Industry Panel Part 1: Commodity Leaders will give presentations, discuss, and answer questions regarding current opportunities and issues
12:20pm to 1:00pm
 
Break 1:00pm to 1:10pm
 
Topic 4 - Industry Panel Part 2: Commodity Leaders will give presentations, discuss, and answer questions regarding current opportunities and issues
1:10pm to 2:10pm
 
Question and Answer and Wrap Up 
2:10pm to 2:25pm
 
 
 
 
AgKnowledge agriculture business seminar
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Organizational Developement Key to Continued Success

Mike Salisbury, CAC
Oct 2, 2015 05:20 PM

In nearly 45 years of providing business consulting services to agricultural family businesses across the U.S., I have observed and become convinced that the key to success in today’s ag business  environment is ensuring that the business leaders pay attention to evolving the organization and the resulting structural needs that growth drives. A majority of business units pay attention to successfully growing the numbers of acres, head, or whatever they produce. However, many ignore the organization. This results in ineffective organizational structure and creates stress on the business and its people. My goal is to provide focus that will generate discussions around the table with producers that will effect positive change in each of the following areas.

Too many families that I deal with are having significant issues within the framework of the business. Many times, these farm families are experiencing problems and people issues that are being caused by organizational structure problems or shortcomings; not the typical cause that families blame each other’s performance or the business. Effective and successful businesses will pay attention to evolving their organization structure in the following areas.

 

  1. Defined Communication System
    1. Planned communication
    2. All team members are involved in the process
    3. Robust participation
    4. Agenda and minutes, including action plans

 

Nearly all of our client families suffer from a lack of effective communication. They all have a multitude of excuses for this lack of basic communication. We often hear from clients that they always do better after one of our meetings with them. When asked why the simple response is because when they meet with us they talk and work through the rough areas. This past week, I had an especially difficult meeting with a client family about a family member and they all were amazed that we could discuss this most difficult topic without the typical hollering and insults being evident. When I asked them why this was, one of the members answered that they all knew that their facilitator had the skills to work them through the land mines successfully, without blowing up. Translate that as the meeting had an agenda, the team practiced a code of conduct and trust and respect were evident. It all boils down to the team needs a leader that can lead.

 

  1. Governance of the business and its people
    1. Mission Statement
    2. Vision Statement
    3. Code of conduct
    4. Policies and procedures
    5. Controlled   Entitlements

 

Governance is used in this context as the tools that control the business in its direction. If this can be effectively communicated to the team, there will be concerted and coordinated action towards agreed upon goals. These practices, if effectively communicated and the leader leads them will result in clarity of purpose, direction, behaviors and values. Generally, the organization undervalues the importance of these, especially if the organization is growing rapidly. The misuse of entitlements is the first indication that the business and members are not committed to the values and the success of the enterprise. To curb, this the leaders need a firm hand and resolve to provide corrective actions.

 

  1. Effective and delegated decision making
    1. Organizational chart
    2. Job descriptions
    3. Clear and effectively communicated operating plans

 

Decision making in a rapidly growing family business is so often under managed.  Normally the senior member of the team has traditionally been the benevolent dictator at the expense of developing successor generation members in their leadership ability. Then as the business outgrows one person’s ability to manage the enterprise, it causes considerable pain in the organization and off times results in the necessity to hire any outside leader with the skills to lead the organization. This causes revolutionary  versus evolutionary change in the organization. This type of change creates pain and disruption. The tragic effect of this type of change is that the family generally is in turmoil before the senior leader understands that his leadership is creating this situation. The morale suffers and normally key people have fled the company to get away from the dysfunction.

The need for effective human resource management is self-evident if the family understands basic people management theories. Each member of the team needs to clearly understand what his/her job is, who his/her supervisor is, and what role he/she plays in the entire team. We only need to look at a sports model to understand that every team has a specific role for every player on the field. Our operating plans are the plays that get called for the players to execute.

 

  1. Talent management, recruitment, development and retention
    1. Hire talent suited to position
    2. Develop potential
    3. Manage performance and identify future leaders
    4. Train, train and train some more
    5. Develop clear expectations and goals

 

“You just can hire good help!”  If I had a nickel for every time I have heard a client tell me that, I would be quite well off. An effective talent management plan will go a long way in assisting you in developing great employees. Recently I was talking with a past client about how his talent management plan was working. His management team has developed a very robust and effective talent management plan. They designed a plan and then decided to test it.  They hired a college intern from an ag production  program and selected a senior manager from their current team to conduct an experiment on how well a highly talented college intern would do against a seasoned vet. Now, of course neither team member knew this was an experiment. As you can guess, the intern’s fields topped the veteran’s fields in most areas that were being measured. The learning from this exercise is that if you recruit the right people, provide them the tools, training and resources, they can become “good” employees very rapidly. Every company has one or two of the required competencies for great team members but they are lacking some of the critical skills to round out the talent management program.

 

  1. Financial management -  measures and control
    1. Ensure accounting system is robust so that it provides management accurate and timely information.
    2. Utilize effective budgeting tools that can provide direction to the management team.
    3. Develop reporting formats to provide to various stakeholders in the organization. These reports will communicate financial results that will keep all informed and motivated, including lenders.

 

Understanding the business’ financial management is one of the most important competences that are required for success. When I first start working with clients, very few of them have effective financial management systems and procedures and even fewer have effective methods of communicating them to the rest of the management team. One exercise we use is to ask each member of management team what the profit was from last year’s operation. Most of the senior members of the team have a rough idea; very few of the successors do. Too many business owners rely on their bankers for that information. Bankers are poor sources of that information because most of them rely on faulty financials records from clients. A recent example of this is a client family I was working with this past week. We had been discussing this topic and with recent changes in the structure of the newly formed business, they had us do a ratio analysis. We determined that the revenue was down $1.6mm due to price and yield erosion and labor and management expense was over budget and above last year by $300,000 or 60% of previous year. 

 

  1. Succession that will continue to provide opportunities for future generations of family employees.
    1. Family enterprises have an operational advantage over non-family businesses.
    2. It is a challenge to successfully move family businesses from generation to generation.
    3. Solid succession plans are a necessary requirement for this to happen.
    4. Entitlement attitudes by successor generations doom many family businesses.
    5. Lack of adequate growth opportunities drive family members from businesses that are deficit in mission, vision and growth plans.

 

Succession planning has become an integral part of the business planning process. So much so that lenders and customers are requiring ag businesses to have written plans in order to do business. The minimum components required today are a fully designed and completed management transition plan, coupled with a developed estate plan that includes wills and trusts which have been approved by an attorney. Key items that need to be covered in a succession plan include how the management is going to be transferred, who should be in line for senior management and what is to take place if a crisis plan needs to be put in place. In nearly 25% of the families we consult with, at least one family member ends up being asked to leave the organization due to a lack of alignment with the family’s mission, vision or cultural values.  Be aware of need for effective planning for your family business.

Redefining your family businesses’ organization structure is a long, arduous process, but is very essential in the life cycle of a family business.  An abundance of information on Family Business Organizational Development, feel free to call me or email me to discuss any of this material.

Mike Salisbury,  208-420-9092 msalisbury@coopernorman.com

This article appeared in "The Farmer's Edge" Newsletter put out by Hurley and Associates- October 2015, Volume 20, Number 5

Content shared or written on the internet is not intended to replace individual professional accounting, legal, or other business advice. Please see our disclaimer here.

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Selecting Family Advisors

Rebecca Salisbury
Dec 16, 2014 10:31 AM
In the course of providing consulting to clients over the decades it has become apparent that we have advised our clients to get over the need for independence, and seek help from trusted advisors such as veterinarians, lenders, agronomists, lawyers, consultants and other ag  professionals. The business of agriculture has become so complex that no one person can maintain adequate knowledge in all essential areas of the industry. In a great little book entitled How to Choose and Use Advisors: Getting the Best Professional Family Business Advice by Craig Aronoff and John Ward, I found a wealth of knowledge on the value of good advice and how to find and use the right expert advisor for your family business.  Below are some bullet points to help you in your search.  The consultants at Cooper Norman would welcome you to use these criteria to judge their expertise.  They are sure you will find they have the highest qualifications to “keep your business healthy and your family happy”.
 
Benchmarks of Excellence in Advisors
• Maintains up-to-date technical knowledge and shows strong interest in and commitment to his/her field
• Communicates openly in clear, simple language
• Seeks to know the family and business in depth
• Understands how families work and how family and business relate to each other
• Gives advice and counsel that suit both the family and the business
• Shows empathy, patience and trustworthiness
• Is willing to work with successor generations 
• Promotes collaboration among advisors
Red Flags in Client – Advisor Relationships:  Advisor…
• Fails to avoid conflict of interest
• Fails to respect client confidentiality
• Works in isolation
• Sells solutions rather than listening to problems
• Ventures beyond his/her knowledge
• Makes decisions for the client
• Fails to foster good communication
• Lacks empathy
Checklist for Selecting Advisors:
• Do you trust the person and feel confident of his/her abilities?
• Is the advisor at least as successful in his/her field as you are in yours?
• Is the advisor still learning and willing to change?
• Would you be proud to be associated with this person before customers, suppliers, and other important contacts?
• Does the advisor have a good mix of long-term and newer clients?
• Does the advisor have enthusiastic references from businesses similar to yours and have the references given permission to be used?
 
Resource:  How to Choose & Use Advisors by Arnoff & Ward  www.efamilybusiness.com
 
 
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AGKnowledge Cultivating Agribusiness

Brooke Eppa
Oct 30, 2014 04:58 PM
AGKnowledge Seminar Logo
 
 
AgKnowledge agriculture seminar image
 
Click on your desired location to register through Eventbrite or call Malinda in our Idaho Falls office at 208.523.0862 for questions or to register over the phone.
$25 per person or $50 per farm (lunch is included)
 
 
 
 
AgKnowledge Agriculture seminar header image
 
Itinerary
 
Sign in and registration
9:45am - 10:00am
 
Session 1 - Tax Update: ACA, Farm Bill, etc.
10:10am to 10:55am
 
Session 2 - Protecting Your Business from Fraud
11:05am to 11:50am
 
Lunch
11:50am to 12:20pm
 
Session 3 - Estate Planning and Transition Planning
12:20pm to 1:05pm
 
Session 4 - Industry Panel: Commodity Leaders will give brief presentations regarding current opportunities and issues
1:15pm to 2:15pm
 
Question and Answer and Wrap Up
2:15 to 2:30pm
 
 
AgKnowledge agriculture business seminar
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Disclaimer

Brooke Eppa
Jun 9, 2014 10:17 AM
Any material appearing in communication or shared third party content from Cooper Norman is for informational purposes only and is not intended as legal, accounting, or tax advice provided by Cooper Norman. Opinions expressed in communications from Cooper Norman professionals or shared third party content do not necessarily reflect the opinion of Cooper Norman or its associates. These communications are not intended to create, and receipt does not constitute, a legal relationship, including, but not limited to, an accountant-client relationship. Often these materials have been prepared by professionals, but the user should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information presented. Cooper Norman assumes no obligation to provide notification of changes in tax laws or other factors that could affect the information provided.
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2014 Idaho Potato Conference Winner

Brooke Eppa
Feb 24, 2014 02:09 PM
Joey Wallace with Driscoll Brothers was our winner at the 35th annual  Idaho Potato Conference and Ag expo. He won a SIG SAUER SP2022 .40 caliber with laser and holster. Presenting Joey his prize is Blake Johnson, the Managing Member of the Idaho Falls office of Cooper Norman.
 
Joey Wallace with Driscoll Brothers, winner, 2014 Idaho Potato Conference, 35th annual Idaho Potato Conference and Ag Expo
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Retirement Means Big Decisions for Farm Families

Brooke Eppa
Jan 8, 2014 10:12 AM
Retirement can be a tricky business to plan for. The article "Retirement Unlikely for Some Blue-collar Americans" tackled some of the issues, and our own Mike Salisbury weighed in.
'Farmers, loggers and other agriculture workers often have their wealth tied up in their homes or work property. Business consultant Mike Salisbury of American Falls, Idaho, has spent more than three decades helping farmers plan their financial futures. He said the biggest concern for most is succession _ whether any children want the farm once a farmer retires.

 

"Now, statistics pretty well show that about two-thirds of farm families do not have successors interested in coming back into the business," Salisbury said.

 

Without someone to take over the family business, farmers look for an exit strategy, he said. "There are some really complex tax ramifications for when a farmer decides to stop farming."

 

He said farmers approaching retirement want to know how to convert the equity in their land, fixtures, buildings and machinery into cash without having to pay the upper tax rates or having to pay taxes in a lump sum the day assets are sold.

 

"We like to think of our farmers as just barely getting by and dirt poor," Salisbury said. "For the vast majority of farmers today, the ones that survived the economic crash of the `80s, they're probably in pretty good shape."'

"Retirment Unlikely for Some Blue-collar Americans" By EMILY WAGSTER PETTUS Associated Press

Find a copy of the whole article here.

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