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Family Business Matters       09/08 14:29

   Practice Business Practices

   To be a good family business, don't act like one.

By Lance Woodbury
DTN Farm Business Adviser

   The best qualities of being together as a family can have disastrous 
implications for being together in a business. The strengths of history, 
relationship, affection and inclusion, when carried too far into the business 
context, can create significant limitations. The virtues that produce long-term 
(versus quarterly) thinking, legacy and purpose-driven environments, 
family-friendly cultures, fringe benefits and flexibility, can also create poor 
communication, fuzzy performance expectations, toxic work environments and 
perverse rewards. How do the following examples relate to your family business?

   -- Entrance Guarantees. Many family business succession plans are 
well-intended but doomed early on, when the senior generation leaves the issue 
of returning to the business entirely in the hands of the younger generation. 
Without regard for education or experience, the next generation is told, "There 
will always be a place for you here." 

   Contrast this approach with a non-family business. You would not guarantee a 
spot for someone without a clear understanding of his or her qualifications, 
how they can contribute to the enterprise or whether the business can afford 
them. Being a family member does not guarantee business success. While a lack 
of experience and education don't assure failure, the odds of success are 
hindered when the only qualification for return is DNA.

   -- Compensation Philosophies. In most families, equality is a principle 
applied throughout childhood. Even though we may demonstrate love to our 
children in different ways, we try to avoid showing favoritism. With this 
background, it becomes difficult to pay the next generation different amounts, 
even if their contributions are distinct. 

   All businesses face the difficulty of compensating people fairly for 
different kinds of work. But, avoiding a difficult issue by paying family 
members equally, regardless of each person's contribution, results in 
frustration for those adding significant value and irritation for spouses who 
see differentiated efforts and results among siblings.

   -- Performance Standards. A frequent refrain in family businesses is, "You 
can't fire family." The reference is to poor behavior on the part of the family 
member, behavior that would, under normal circumstances, cause that person to 
be let go. 

   The business impact of a poorly performing relative can range from hiring 
and retention problems, to loss of customers and landowners. It causes harm to 
your reputation in the community and in the industry. It also creates a 
succession obstacle for the senior generation, which stays around to buffer the 
impact of the incompetent or destructive family member.

   -- Exit Strategies. The spirit of camaraderie in working with people you 
know well can be a refreshing difference between family and non-family 
businesses. You can often become aligned more quickly on strategy, be more 
honest about your differences, execute faster and communicate more informally. 
Unfortunately, and partly due to these positive elements, the default response 
to many future problems is, "We'll figure it out. We're family." 

   A family member's exit from ownership or management is a common family 
business challenge. By not having a process and agreement in place for how this 
exit occurs, you create a risk of conflict and financial problems. Waiting to 
negotiate an exit in the middle of a family member's departure while trying to 
run the business, train a replacement, avoid tax consequences, establish entity 
values and come up with cash is overwhelming for most families and, often, 
worsens the health of the family and business. Consider planning your exit 
strategies sooner rather than later. 

   Well-run family enterprises offer wonderful benefits to owners, team members 
and communities. To sustain those benefits, implement some of the professional 
practices you see in non-family organizations. Many of those same practices 
will make you a better family and business.

   **

   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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