A couple of years ago, I wrote a column on "continuity of management" - a key to the decision-making process for credit needs - and thought we should visit it again. This is an area of great importance when financial institutions make credit decisions.
The end of the tax season is a great time not only to plan future tax strategies, but also to look at estate planning as part of your overall business plan. Start by asking yourself, "Who are the key drivers in my business?" "What happens in the event that I am disabled or unable to make decisions?" And more important, "In my absence, what happens to my business, and is my family taken care of?"
Yes, these questions are hard to ask, but they are necessary nonetheless. Dairymen, like any other business executives, must consider these questions and make plans for the future. Leaving nothing to chance is the best way to handle any problem or question. I strongly encourage dairy managers to include succession management in their business and financial plans.
Succession of management means bringing others onto the management team. You may find it difficult to give up the reins, but you can certainly go farther with two or more drivers on the stagecoach. Indeed, adding to the management team can provide several benefits:
- Shared ideas.
- Different perspectives.
- New suggestions for improved efficiency and profitability.
A tree with many limbs will produce more fruit than a tree with just one limb. The same is true with management. Having a few more members on the management team allows for the development of expertise and a spreading of responsibilities. It allows the new managers to learn from older, experienced managers while there is still time to teach.
From a banker's perspective, continuity of management weighs heavily on credit decisions. We want to know who on the farm is responsible for what. As bankers, we always ask "what-if" questions. And the No. 1 question is, "If something happens to you, who will take over and how will the operation continue to do business?"
Financial planning and understanding the budget process are key elements that should be shared with the entire management team, your family and your heirs. The sooner you make members of the family part of the management team, the sooner they will learn and understand the details of the operation.
Some of you won't want to give up control. Plus, it's easier to make unilateral decisions without having to share ideas or listen to someone else. We only want to pass the reins when the horses are tired and the stagecoach is easier to drive. But the stagecoach is never easy to drive, and the sooner you have someone else hold the reins for awhile, the easier the ride and the more time you will have to check out the scenery.
Part of the plan must be the development of future managers. It is one of those "how-do-you-know-if-you-don't-try-it situations."
Strive for continuity
Continuity, by definition, is an uninterrupted succession or unbroken course. Having continuity of management and keeping the family informed about your business is as important as working with your nutritionist to find the best-cost ration.
Agriculture is entering a new frontier that requires big changes. We must go beyond the tradition of independence to a new business model founded on partnering. And, partnering with potential heirs can lead to continued success.
Anthony DeRose is an executive vice president of Wells Fargo Bank in Visalia, Calif.