Transition planning is disrupted. Now what?

Friday, September 17, 2021

Four experts explain how stressful circumstances may throw a wrench in planning and how to recover to make transition as smooth as possible.

By Jackie Clark

You did what every farm-business adviser suggests about transition planning – you started early.

You put in all the hard work and years of soul-searching, discussions, meetings, negotiating, paperwork and finally have a transition plan in place.

But then something changes – maybe a death or life-altering injury, divorce or separation. Maybe someone has changed their mind.

Now what?

Better Farming connects with experts in farm transition to find out what happens when a plan starts to go sideways or is derailed by a crisis situation. They provide advice on how to prepare for and respond to such a situation.

What is happening?

A transition plan involves "the transfer of labour, management and ownership," says Elaine Froese. "Things can go sideways when the first generation dictates to the second generation, 'This is the way the plan will be.'"

Froese is a Manitoba-based farm-family coach and member of the Canadian Association of Farm Advisors (CAFA).

In addition to generational disconnects, disrespect among in-laws, non-farming siblings or partners can lead to unworkable situations when attitudes of greed, entitlement and bullying come into play, she explains.

Elements of a strong foundation for farm transition include "storytelling about a passion for farming, an attitude that's positive, mental health for the whole farm team, affirmation, appreciation and celebration, communication skills, team-building and trust-building, conflict resolution, and nurturing resiliency and the ability to bounce back," Froese adds. The absence of those prerequisites can lead to rocky transition planning.

Aside from the universal challenges of putting a plan in place, crises such as death, divorce or critical injury can disrupt transition. Each scenario will impact the plans to a different degree, Andrea De Groot, a Stratford-based ag transition specialist at Farm Credit Canada, tells Better Farming.

"When we think of a transition plan, we have a fiscal reality where we're trying to protect the business, but we also have an emotional reality where we're trying to protect the family," she explains.

Don't panic

When a family is "working through death, serious life-altering injuries or divorce … at the end of the day emotional baggage comes with this kind of event and it can be a traumatic experience," De Groot says. It is important to "take some time to recognize that it's a traumatic experience and it's important to grant yourself the grace to not have all the answers immediately."

The farm likely "has some immediate needs that need to be addressed," she adds. "Break the bigger issue down into smaller issues … and then delegate."

Asking for help when responding to a crisis is a key strategy.

"It's so important for people not to feel overwhelmed," De Groot says.

The goal of responding to the situation is likely similar for most families.

"We want to make sure we protect the family harmony, protect the legacy of the farm and make sure that we can reduce the risk associated with the farm in the future," Andrew Leach says.

Leach is a member of CAFA and an adviser at Farm Life, a Peterborough-based company that helps producers with transition, estate and business planning.

Though it may seem overwhelming to have a wrench thrown into plans you have already worked so hard to create, it is usually advantageous that the farm has some existing structure to work from.

"One of the key things that we've realized is that it's much easier to adjust an existing plan than to start from scratch after one of these events has occurred," Leach explains. "This is one of the key reasons to have a succession plan, because it's easier to edit your plan than it is to start a new one after the event."

Brent VanParys agrees. He's a partner in business transition services at BDO Canada's office in Woodstock. BDO Canada is a national accounting and financial advisory company.

"For the most part, the work that we do to prepare the business and the family and the family wealth – all of that work is still valid, without question," he says.

Transition planning "often starts with visions and values, then principles and policies, and then it will get distilled into legal agreements when the actual ownership transfer takes place," he explains. "So, the further along you get in the process, the more protected the company is and the clearer the policies around ownership entering and exiting become."

Be prepared

It is beneficial to include some flexibility or contingency strategies as you build the initial transition plan.

"You might have different what-if scenarios that you're thinking through," De Groot says. "When you think through those scenario-based examples, you're going to build a better plan. Knowing that you built that plan so you can alter it as life happens is a good thing," she adds.

Leach agrees.

"When we're creating succession plans, there is usually a definitive goal in mind for the family, but during the course of the conversations we always like to try and protect from the what-ifs," he explains.

Plans "that we build actually already have some risk management and contingency planning in place so that if those things are to happen, we can really reduce the impact of those events on the farm itself."

A family "never knows when tragedies are going to take place, but we make sure that the farm is best suited to react to those situations and have some risk management in place," Leach adds. That approach may include specific insurance strategies or corporate structures to ease the transition of ownership.

A transition plan will include ownership principles, corporate governance, policies on return on investment and compensation, explains VanParys.

Those "help build the foundation for a shareholders' agreement," he says.

"If you get a shareholders' agreement in place, that's the document that governs if somebody does change their mind and wants to leave.

"The legal and tax steps to orchestrate that exit are governed by the shareholders' agreement."

In the case of critical injury or death, "the shareholders' agreement will kick in and protect the company, the deceased shareholder's family and the other stakeholders from an untimely exit," VanParys adds.

"Most often it will provide for a termed-out buyout, so it takes place over a number of years to make sure the company remains financially healthy. And if it's an early voluntary exit, there are ways to build in little penalty provisions."

Punitive provisions can help the farm business recover costs if someone wants out of an agreement earlier than expected, VanParys says.

Another preparative action to take is working on the incoming generation's strengths and weaknesses, explains Leach.

"If we start those leader-development qualities early and we start to identify some areas for improvement, then if something came along that was to speed up a succession plan or alter the course, those successors are already on their way to developing some of those skills," he says.

Logistics and communication

Of course, while the family or farm team is working through transition-planning processes and responding to disruptive situations, the work on the farm must continue. Good communication is key for business continuity during stressful circumstances.

If "a code of silence gets invoked, people stop interacting with each other as much as possible and that, of course, is like being in a pressure cooker about to explode," says Froese. "That's not tenable, healthy or wise."

The farm team must commit to "compassion and communication," De Groot says. "Let's acknowledge what happened here and communicate what this means now going forward."

Farm Life advisers "like to focus on establishing strong communication, creating accountability and creating some governance models for the family to follow," Leach says. That approach helps families adapt to change, even during a crisis.

"The more we can understand the family dynamic, the way people communicate together, the way decisions are made and how the family itself works toward the goals of the family farm, the more clearly we can identify some of the barriers that they might face," he explains. "We start to create strategies with the family to reduce the impact of those barriers."

When families address hurdles early in the process, "we find it's often a lot easier for the families to stay on track with their plan and adapt to the changes that come their way," Leach adds.

The family can use similar inquisitive strategies to understand and work better with each other.

"Can you put yourself in the other person's shoes?" asks Froese. "Can you create solutions together?"

Work on the farm doesn't stop and work on your transition plan shouldn't stop either.

"I think you really do need to purposefully continue to execute the transition, so you've got to block off a period of your week or month and work on that exclusively. Make it part of your normal routine," says VanParys.

"Farmers are busy, all business people are busy, and so to add this on top of your regular responsibilities is difficult because it does take intention."

Business, family and feelings

Managing a farm business is made more difficult by how tied up the farm can be with family life.

"The emotional element is difficult for families to manage," says VanParys.

De Groot agrees.

Families should "be intentional about what they are talking about," she explains. The family and business aspect of the farm should have some separation.

To help distinguish between business and family conversations and decisions, "we use a three-circle model," says Froese. This model includes the family circle, management circle and ownership circle.

This approach can help intentionally determine which decisions fall under which category.

"You try to take the family element away and depersonalize the decision," explains VanParys. This may be difficult, but "if the family is still on solid ground, you don't want to jeopardize that. You want to reduce the opportunity for conflict as much as you can.

"The stronger the family bonds, the better-than-average opportunity they'll have to effect a good business transition and a good ownership transition," he adds. "So that family piece is important and ongoing."

Ongoing attention to the health of both business and family, particularly during a stressful situation or tragedy, involves the ability to process feelings productively.

"I think first of all you have to recognize that expression of emotions is important in conflict resolution," says Froese. "Deep emotions are fine, but they have to be navigated, so it usually helps if you have an outside third-person facilitator who is skilled in keeping the family business meetings safe and respectful."

Families should acknowledge that everyone processes feelings differently.

"Family members are going to be at different emotional states. Not everyone's going to feel the same way at the same time," De Groot explains.

When a farm transition doesn't go as planned, "I think it's really important to allow yourself to grieve," she adds. "In business we don't necessarily acknowledge that. Somebody doesn't have to die for you to be grieving. You can be grieving an expectation of what you thought the future would be."

Access support

In hard times, advisers can "work as facilitators for the family," Leach explains.

During a "tragedy or major life event, emotions often run high within families. And that can lead to conflict and it can lead to poor decision-making. But having someone act as a facilitator for the family really helps everything stay on track and allows for an unbiased opinion to be used in the farm business planning," he says.

Advisers can also help facilitate communication with lawyers and accountants.

That external support can "keep the process moving without placing the burden on the family. It allows the family to focus on the farming and focus on the family," says Leach.

Assistance can come in many forms.

"I think people should ask for help. I think people should get facilitation. I think people should go to the doctor and find out if they are mentally depressed," says Froese.

Staying in good mental and physical health is important for running a business.

If you find that stress is impacting your mental health, "maybe you're not the right person to be making some of the decisions right now because you don't have a clear mindset," De Groot counsels. There is no shame in farmers reaching out for advice or technical support.

Having an existing plan and relationship with professionals can help make the process of responding to crises easier, she adds. BF