Family Business Matters       02/28 11:15

   When Succession Means Splitting Up

   Circumstances may make it beneficial to end an operation rather than 
struggle in the future.

By Lance Woodbury
DTN Farm Business Adviser

   In the course of planning for the future of the family business, there are 
sometimes reasons to consider splitting up. While no one likes to talk about 
ending a multigenerational enterprise, it may be necessary. If that becomes the 
case, then "ending well" should be a primary goal. 

   REASONS TO SPLIT UP 

   Here are some reasons it may be time to split up the family farm.

   -- Lack of successors. In rural communities and agriculture businesses, a 
trend has been for members of the next generation to move away. Community 
amenities, labor demands, risk management and capital requirements for a farm 
or ranch are just a few of the reasons the next generation sometimes chooses to 
work elsewhere or live in a more urban environment.

   -- Different visions or goals. Sometimes, family members working together 
have different visions of what the future should look like. Disagreements about 
business growth, debt, employee management, roles or financial distributions 
can lead family members to decide that pursuing goals separately is a better 
option.

   -- Tax strategy. In some cases, family members are in business together 
because the preceding generation minimized its estate tax risk through the 
creation of partnerships or corporations, requiring siblings or cousins to 
become owners together. Family members did not willingly choose to be business 
partners and thus may be ready to go back to being just a family. 

   -- Growing apart. Family members often come back to the business and help it 
grow by expanding different enterprises, for example, crops, livestock, ag 
retail, grain storage or custom work. Such divisions of labor can lead to 
businesses that are in a better position to stand alone, and occasionally, not 
desire to maintain a relationship where land, labor and capital are shared.

   PLANNING STRATEGIES

   Regardless of the reasons for ending or splitting up the business, there are 
some strategies that can help with the planning.

   -- Agree on the pros/cons of your current course. Since ending or splitting 
up a business is a significant change from the past, make sure everyone 
understands the reasons for the change. Taking time to talk about demographic 
and economic realities, or jointly admitting you have different goals, helps to 
frame the future as a joint problem to be solved.

   -- Articulate different courses of action. All family businesses, while 
sharing similar challenges, have a unique history, culture and family dynamic. 
Your future path and specific strategy for splitting up should take into 
account these particular dynamics. Use advisers who will seek to understand 
each person's interests and goals so a solution might be crafted that meets as 
many people's interests as possible.

   -- Manage your expectations. A good agreement to split often means finding 
solutions everyone can live with (their "interests," as mentioned above) versus 
finding solutions everyone wants. Every individual needs to give a little to 
find a solution that works well for the whole group.

   -- Keep the process moving. It often takes decades to create a unique 
farming and ranching business and culture. Splitting up does not happen 
overnight, and depending on the size and complexity of the business, it can 
take months or years to unwind, particularly when you consider the income tax 
ramifications. Commit to continuing meetings that identify the next steps to 
move forward.

   Choosing alternatives to succession -- splitting up -- is not failure. 
Instead, failure is splitting up in a way that hurts one another and drains the 
family's equity on legal fights. A collaborative, consensus-driven process to 
end well can serve family relationships for generations to come.

   **

   Editor's Note: Write Lance Woodbury at Family Business Matters, 2204 
Lakeshore Dr., Suite 415, Birmingham, AL 35209, or email lance@agprogress.com. 


(AG)

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