1. Making a Success of Succession Planning using the Critical Path Method David W. Baker Farm Transition Specialist 1-877-232-1999 baker@iastate.edu Photos by USDA NRCS

2. ACKNOWLEDGEMENTS Dr. Andrew Errington (died 2003) University of Plymouth, England Dr. Walter Warrick Drake University Dr. Michael Duffy Iowa State University John R. Baker, Attorney at Law Iowa Concern Hotline

3. Is there a desire to continue family ownership of the farm family business? Is there an heir or key employee capable of managing the farm family business? Does the heir or key employee want to manage the farm family business? Will the owner/managers recognize the authority of the successors? Can the family withstand the stress that succession planning will generate? Will the owners/managers actively manage the development of a farm family business succession plan? Will the owner/managers transfer the management of the farm family business to the successor? IMPORTANT CONSIDERATIONS

4. Have all stakeholders been identified, informed and involved? Has a decision-making process been agreed upon by all parties? Have the stakeholders developed a vision of their future and the future of the farm family business? Have the necessary roles that will be filled by the stakeholders been identified?

5. Have successors been chosen for key positions and have training plans been developed for those positions? Has an estate plan been developed and does it provide for equitable distribution of farm family business property? Have all important parties been made aware of the details of the farm family business succession plan? Have contingency plans been developed?

6. SIZESIZE START-UP GROWTH MATURITY DECLINE ATTRIBUTES OF THE BUSINESS HIGH RISK OF FAILURE STABLE BUSINESS SHORTAGE OF CAPITAL ADEQUATE CAPITAL EXCESS LABOR SHORTAGE OF LABOR LEARNING TO MANAGE CAPABLE MANAGEMENT EXPANSION GOALS EXIT GOALS Business Life

7. SIZEINDOLLARSSIZEINDOLLARS TIME Business Growth Curve

8. THE FARM Money Management SUCCESSION PLAN BUSINESS SUCCESSOR HEIRS Owner’s Goal: Continuation of family ownership of farmland Owner’s Goal: Continuation of farm family business Assets ESTATE PLAN

9. VALUES What is important to me? What do I hold dear? VISION What does the future look like? MISSION Why are we here? What do we believe in? GOALS What do we want to do? What do we want to be? OBJECTIVES How are we going to get there? How will we know when we have arrived? STRATEGIES What do we need to do? What are we required to do? TACTICS What do we need to carry out our strategies? Who is responsible for the necessary activities?

10. ACTIVITY Strategic Business Planning Estate Planning Retirement Planning Expansion Financial Analysis Asset Inventory Asset Analysis Skills Assessment Skills Training Continuing Education Business Meetings Recreational Activities Relaxation Transfer Planning

11. Owner Generation  Values – What is important to me?  Vision – What does my future look like?  Mission – Why am I here?  Goals – What do I want to do or be?  Objectives – How will I measure activity?  Strategies – What is my plan?  Tactics – How do I implement the strategies? Self-Assessment  Skills  Abilities Essential Planning Skills  Communicating  Decision making  Conflict resolution Successor Generation  Values – What is important to me?  Vision – What does my future look like?  Mission - Why am I here?  Goals – What do I want to do or be?  Objectives – How will I measure activity?  Strategies – What is my plan?  Tactics – How do I implement the strategies? Self-Assessment  Skills  Abilities Essential Planning Skills  Communicating  Decision making  Conflict resolution Business Succession Planning Business Resource inventory and analysis  Physical – Short, intermediate and long term property.  Financial – Income statement, balance sheet, financial ratios.  Personnel – Human assets. Essential business principles  Values - What is important to our business?  Vision - What does the future look like?  Mission - Why are we here?  Goals - What do we want to do or be?  Objectives - How will we measure activity?  Strategies - What is our plan?  Tactics - How do we implement the strategies? Business Planning  Opportunities  Threats  Strengths  Weaknesses  One year  Two years  Five Years  Ten Years Retirement Planning  Timing  Residence  Income Source  Household Budget  Recreational Needs  Health Care Needs  Long Term Needs Transfer Planning  Income Amount Source Method  Household Budget  Management  Assets Estate Planning  Equal vs. Equitable  Business Assets  Personal Assets  Consistency  Flexibility  Legal Documents  Liquidity Needs  Tax Consequence Planning should be done simultaneously because all planning areas influence one another.

12. The Critical Path Method Identification of necessary resources Effective method of analyzing a complex process Calculates the minimum time for completion Prioritizes activities to be completed by that date Effective scheduling and monitoring of progress Focuses on the essential activities Provides a graphic view of the plan

13. Activities Sequential activities: activities that are dependent on other activities being first completed. Sequential Activities must be completed in an ordered sequence. Each activity in the sequence must be completed, or near completion, prior to the start of the next activity in the sequence. EXAMPLE: A foundation must be built before walls can be erected.EXAMPLE: A foundation must be built before walls can be erected. Parallel activities: activities that are not dependent on the completion of a previous activity or activities. EXAMPLE: Selection of the paint color for the kitchen walls.EXAMPLE: Selection of the paint color for the kitchen walls.

14. Estimating Time Difficult to estimate the length of time that an activity will take Particularly true if it is a new activity Normal to underestimate the time need to complete and activity High priority activities must be carried before immediate activities Unexpected or unscheduled high priority work that is forgotten Accidents and/or emergencies Meetings Holidays and sickness Break downs in equipment Delays and Interruptions Rejections due to quality or quantity Etc. (If it can, it will and it will at the most inconvenient time.) Develop a systematic approach to include these factors Rely on your experience

15. Methodology List all activities in plan List the earliest practical start date; estimate length of time to completion; if the activity is parallel or sequential; how to measure the activity; who is responsible for the activity; and how and to whom the activity will be reported. The context of the activity determines if it is parallel or sequential. Activity__________________________________________ Start week __________________________ Number of days to completion __________ Sequential & dependent upon________________________ Parallel _________________ How will the activity be measured?____________________ Who is responsible for the activity?____________________ How and to whom will progress be reported?_______________ List all the activities need to complete the plan

16. Copy activities in the appropriate time period Begin with the activities with the earliest start dates Show the activities as arrows that end with a box Show the time taken to complete the activity above each arrow Show whether the activity is sequential or parallel

17. Critical Path Method Chart Weeks 12345678910101 1212 1313 1414 1515 1616 1717 1818 Sequential ------------------------Parallel ----- ---------------------

18. Schedule Activities Schedule activities so that sequential activities are carried out in the proper sequence Scheduled parallel activities so as not to interfere with sequential activities Allow for the unexpected Be prepared for “Murphy’s Law” be flexible with time schedules. Allow extra time.

19. The Critical Path is the longest sequence of sequential activities leading to the completion of the plan. Any delay of in the commencement or completion of an activity on the critical path will delay the completion of the whole plan. The time allowed for future sequential activities will need to be shortened.

20. Critical Path Method Chart Weeks 12345678910101 1212 1313 1414 1515 1616 1717 1818 Sequential ------------------------Parallel ----- --------------------- The Critical Path

21. Keys to Success Strong family relationships, trust and honor Excellent communication skills Recognizing individual differences and being able to compromise Allow gradual management participation Encourage outside interests and hobbies Separate living areas helps separate family and business decisions

22. Keys to Success (continued) Develop a flexible, written agreement that is appropriate to situation and update when necessary. Deal with non-farming heirs in a fair or equitable manner not always equal terms.

23. Conclusion: Develop your own basic plan using a proven system: values, vision, mission, goals, objectives, strategies, and tactics. Share openly and honestly to bridge the generation gap. Enlist experts when needed, i.e. financial consultants, lawyers, management specialists, mediators, and others.

24. Beginning Farmer Programs Farm On- A matching service for beginning and retiring farmers. Individual consultations for beginning or retiring farmers. Individual financial analysis of farm transfers. Research and resource data for farm succession planning.

25. BFC of Iowa Programs (cont.) Nationwide leadership as co- founder of the National Farm Transition Network. Participant in International farm transfer research with Japan, Australia, Canada, et al. Farm Savvy Resource Manual Ag-Link- a special seminar and training session for students and family members returning to family farm operations.

27. Presented by: David W. Baker Farm Transition Specialist baker@iastate.edu 1-877-232-1999 Beginning Farmer Center www.extension.iastate.edu/bfc/ 877.BFC.1999 Providing such programs as Farm On, Ag Link Seminar, educational materials, individual consultation, National Farm Transition Network