Generations & Family Partnerships – Transferring hinges on more than dollars and cents
“One of the things that we run into when we talk about a family business is that we are not really talking about the business,” stated Rick LaPlante, a business and leadership consultant, at the Joint Wyoming and South Dakota Farm Bureau Young Farmers and Rancher’s Conference in Deadwood, S.D. on Jan. 16.
He explained that the conversation usually revolves around family history, relationships and dynamics.
“We are talking about family. We are talking about who is presuming to get what,” he continued.
Making the transition
At one consultation, LaPlante’s client asked him at what age the family business should be transferred from a father to his son.
“This man was about 65 years old,” he noted.
LaPlante explained that transferring the business is a process and shouldn’t be seen as an exact date. Since the rancher’s son was nearly 40, he suggested that some transfer could begin to take place.
“I’m not talking about my son,” the rancher told him. “I am talking about my dad.”
This, LaPlante explained, is a good example for why families should be in communication with each other about transferring family businesses.
“I will caution, it is hard work. It takes dedication, and it focuses on issues,” he noted.
The discussion cannot be based on personalities, assumptions or old disagreements.
“It has to be about facts and what the business is trying to achieve,” he added.
Factors to consider
Data shows, across the world, that family or small, privately owned businesses show better returns than large corporate businesses.
“The first reason is what researchers call patient capital,” LaPlante stated.
This concept means that the business owners see value in the company that is not monetary.
“People will put money into the business and leave it in there, beyond reasons of the purest of economics,” he explained.
The concept of patient capital is also where family legacy comes into play. Family members are willing to invest in the business without seeing the immediate financial returns that they would expect to see if they were corporate employees.
“The second reason family businesses are successful is committed leadership,” LaPlante continued.
In a family business, it is rare that the CEO is competing for positions at other companies or that he or she will be easily bought out.
In a company of any size, one factor of a successful business is the regeneration of business models, which is not always apparent on a ranch.
“Century businesses, or businesses that have been around for at least 100 years, regenerate their business model about every 22 years,” he said.
Those businesses are taking advantage of the fact that a new generation comes up, with their own new ideas and new experiences. According to LaPlante, they are taking advantage of the new-age technology that the kids know how to use.
“It shouldn’t be 65 years between those generations,” he commented.
Transparency is another factor that LaPlante outlines in successful businesses, especially if there are family members who do not live at the ranch.
“If the parents’ generation, as a family, collectively owns an asset but they aren’t the ones using the asset, they are not just aunts and uncles, they are shareholders,” he noted.
Therefore, if family members are still involved in owning any part of the operation, they should also know what practices are taking place.
“Transparency is huge in any family business and equally important in ranching,” he stated.
Finally, one of the most important factors in having a successful business is shared vision and expectations.
“Nothing wrecks a family more than having very different expectations about the family business,” LaPlante said.
Underlying everything, there has to be clarity of major goals. Everyone needs to be on the same page.
LaPlante noted that money is not the only major decision for transferring a business, saying, “It turns out, cattle and grain prices are not the factors that determine whether a business can succeed.”
This article is the first part of a multi-part series on transitioning the ranch to the next generation. Look for more about family and generations in agriculture in future editions of the Roundup.
Natasha Wheeler is editor of the Wyoming Livestock Roundup and can be contacted at firstname.lastname@example.org.