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In general, pig farm owners count on their equity as a retirement plan, but intrinsically, their goal is to pass their business on to the next generation. In many cases, they are unaware of how delicate the process can be and the risks even having a good plan for doing this.
As with any process, planning is essential. To do so, one must have clarity regarding the right time to retire, and determine the rest of the timeline from there. The options will be very personal and depend on each business's characteristics. Although the level of sophistication of the process will vary depending on the farm's size and level of integration, the fundamentals are the same.
In the context of our business and in practical terms, producers have the following options:
- Transfer farm ownership to one or more family members to run the farm.
- Transfer farm ownership to one or more family members to have an outside professional team run the farm.
- Transfer ownership of the farm to a non-family member to run the farm.
- Lease the farm under a contract farming arrangement whereby a third party outside the family rents the facilities.
- Liquidate the farm's assets.
The decision of which option to choose will depend, among other things, on the scale of the business or farm size. Smaller farms are often not so attractive for incorporating competent professionals in the process leaving the other options as the most viable alternatives. In countries where the business system is mostly family-owned regardless of company size, the other options are not very different.
Succession planning is a process, and should involve following these steps in order:
- Transition of management - Management of day-to-day business operations and operational decisions.
- Transition of leadership - Business management and strategic decisions.
- Transfer of ownership - Ownership and control of business assets.
1. Business
Profits and assets - The farm or operation must be profitable as a business and its assets must align with the current needs and characteristics of the industry (sanitary status, maintenance of facilities, etc.). If the operation is not competitive there is no reason for the next generation to be interested in continuing the business.
Cash flow - Ideally the cash flow generated by the operation should at a minimum allow for the operation of the business, investment in new assets, payment of liabilities, and the owners' retirement. Unless the outgoing generation is willing to relinquish ownership, the business needs to grow enough in advance to sustain both generations. This may sound logical, but it is not always seen in practice.
Common business vision - The two generations should have their business vision and goals aligned at least during the transition process. If this is not the case, the process will be uncomfortable, especially for the outgoing generation.
Communication - Good communication between all parties involved is important. Clear, regular, and transparent communication improves the outlook of the process, especially with the incoming generation and potential investors or lenders. This can impact access to capital for future business growth.
Decision tools - In general, the younger generation has had access to more technology, so they tend to make more informed decisions. The outgoing generation, on the other hand, tends to make complex business decisions based more on experience and instinct. Improving the management and financial information system to facilitate better decisions can be a critical factor in the transition process.
2. Owner
Timing - Establish the right time to leave the responsibilities of the business. The outgoing generation must step aside. The succession process will not move forward if this does not occur.
First steps - As mentioned above, the transition will occur in stages. The process begins with the handover of day-to-day operational responsibilities. When this management transition has been successful, leadership is handed over. The result of this lays the groundwork for the handover of assets as the outgoing generation gains confidence based on the results of the process.
3. Successor
Family acceptance - For a successful transition, the successor must have the family's acceptance. A close relationship with parents and siblings will be important to giving the outgoing generation the reassurance that the business is well managed, and the family dynamics are always present.
Competencies - The successor's attributes may be a combination of characteristics such as motivation, creativity, decisiveness, strategic vision, aggressiveness, and communication skills, among others. As one moves from the operational side to the leadership side, this combination of traits will determine how the company is led toward its objectives.
Experience - Generally, the next generations leave to pursue academic development through a post-secondary or university education. In many cases, they even gain work experience before returning to the family business. The learning gained in this process will be very important, as it will be transferred to the business itself.
4. Facilitator
Committed - This process should have an advisor or facilitator. Without a facilitator, transitions may not happen with the right dynamics. The participation of a facilitator focused on results and generating concessions between the parties involved is important. They also bring impartiality and objectivity to the process.
Attributes - The facilitator must have excellent communication skills, a sense of urgency, and be integrating and inclusive. He/she must be direct and discreet without losing objectivity and impartiality. Their role is essential in maintaining clarity with family members regarding the process and its timing.
5. Technical team
Modality - Once the transition of ownership is possible in a succession event, the modality for executing financial transactions may require some sophistication and expertise from a technical team.
Team - The team facilitating the process should include legal and financial experts and a trusted person who understands the business. This team should provide the knowledge needed for a proper transition process including the accounting aspects that will allow for adequate financing.
6. Realistic timeline
Beginning - First and foremost, the process starts the moment the owner is ready to plan his or her departure. If you wait too long you risk the next generation losing interest in continuing the business and pursuing other opportunities.
Time - The speed of the process is also limited by the successor's ability to assimilate management, leadership, and ownership of the assets. The outgoing generation will proceed with executing the plan only when the new generation is ready. These timelines are not the same for everyone.
Finalization - Depending on the business' size and organizational and financial complexity, succession can take up to 10 years to complete. So, it is necessary to be meticulous and patient in the process.
Generally speaking, one will have the opportunity to participate in this transition process only twice in a lifetime. When receiving the business and when passing it on to the next generation. Therefore, it is vitally important to be aware of the difficulties that this process can entail. Consequently, considerations must be made in a timely manner to ensure a good outcome.
