What do you envision for the future of your equine business? Do you intend to close it, sell it or pass it along to your kids? Whether you’re the sole owner of the business or you lead a program owned by someone else, it’s never too early to begin planning for the next phase of your life and your equine business.

In southern California, Certified Horsemanship Association (CHA) instructor Lori Hall-McNary is committed to keeping her Rockin’ L&D Ranch in the family. She operates the ranch on a parcel of land originally purchased by her grandfather in 1943.

Her three grown children were raised in the business and continue to remain active. Her middle son, Nathan, still lives on the ranch, where he is the barn manager and assistant riding instructor. Her oldest son, Drew, suggested drought-resistant plants for erosion. And her youngest son and his wife help with special events.

“Our family’s biggest reward in passing the ranch from one generation to the next is summed up as I look out my kitchen window to the one-hundred-plus oak trees,” Hall-McNary said. “The roots run deep and stable, enabling the new generation of growth to reach for the sky.”

On the East Coast, CHA instructor JoAnne Young was instrumental in building the Houghton College equestrian program, where she served as equestrian program director. Over two decades, she stewarded the program from just a few courses as part of an independent studies curriculum to a minor, then a major.

Young and the college leaders were equally committed to finding an individual capable of continuing the legacy. She and the school’s academic dean drafted a formal succession plan. The plan included sequential steps and stages. The new hire would start part-time and gradually work into full-time. This allowed time for the new employee to get acquainted with the role and allowed Young to share her knowledge about the program.

Steps and benchmarks were laid out for the process so that the new person could get comfortable in the expanding position, adjust to the scheduled changes and have an opportunity to meet the increasing requirements. The college gave Young the honorary title of “equestrian program director emeritus,” and she continues to participate in weekly department faculty meetings and to teach a few courses.

“My goal is to be supportive of my colleagues as they continue to develop and expand the excellence of the equestrian program in whatever ways they would find me to be helpful,” she said.

Creating a succession plan takes time and careful decision-making. It’s a process that should take place long before the current owner or manager is ready to step aside. In this article, find advice for beginning the process and considerations to take into account along the way.

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“Succession planning is one of the most important activities a business can conduct in terms of long-term viability,” said Keith Dickinson, CFP, business consultant with Farm Credit East, ACA.

Statistically speaking, 30 percent of family businesses survive through the second generation and 5 percent make it to subsequent generations. The original research, conducted 15 years ago by the Family Business Consulting Group, acknowledged that there are many factors contributing to this figure. However, without question, succession planning is critical for those with the intention of keeping a business in the family.

Farm family coach and succession planning coach Elaine Froese explained that succession planning is more like a journey than a destination. The Manitoba, Canada, consultant believes that conversations and actions relating to the transfer of a family-owned business begins years— even a decade or more—in advance of the actual transaction.

“Quite bluntly, if the business owner waits for a signal to start the process, then they have waited too long,” said Dickinson.

A thorough succession plan takes into account management, financial and operational processes of the business, all of which evolve over time. Transitioning management responsibilities comes first. During this phase, the heir apparent gradually increases his or her responsibilities and duties within the business. Then comes the gradual shift of financial roles.

“This includes successors participating in the financial management for at least three years prior to a transfer of ownership,” Dickinson said.

Financial matters extend beyond operating expenses and revenues. Financial considerations include the income as well as the estate and inheritance taxes to which a business and its successor might be subject. A qualified tax adviser can offer the most accurate guidance, because each state has its own generational ranch rules and/or laws. For example: Hall-McNary explained that currently in California, the property value and tax rate on land remains the same if it is kept within the family. For example, one family member could give it or sell it to another family member as part of a transition plan.

Hall-McNary added that hiring an equine estate lawyer is as important as working with a certified public accountant (CPA) that specializes in equine and estate finances.

“The best succession planning happens when everything is in writing by a third-party professional,” she said. “That leads to a plan that is based on facts, not emotion.”

Fairness and perceived fairness is a significant part of the conversation, and greed or unreasonable expectations might have to be addressed. “Each person (current owner, future owner and those not involved in the business) has to be able to define what fairness looks like to them,” Froese said.

Hopefully, one family member stands out as the leader and heir apparent. Even when the successor is obvious, it’s important to consider the needs and wishes of other family members not involved with the business. The “non-business heirs” often include other children uninvolved in the business and/or the spouses of the family member destined for ownership.

When all family members have an opportunity to express their expectations, it’s easier to find an amicable solution.

Equine businesses such as Houghton College’s equestrian program don’t have the same financial considerations as a business that is family owned. The finances remain with the college, and there isn’t the element of fairness in distributing assets. It’s also unlikely that non-family-owned businesses will have an apparent heir. But it’s equally important for similar businesses to create succession plans that include recruitment and hiring replacements well before key employees leave.

Determining Fit

A charismatic leader is difficult to replace— especially when that person is the one who started or built the business to its current level. There is unparalleled passion and commitment. A succession plan can help identify a successor who is equally capable in carrying the business forward.

In a family business, there is the added challenge of expectations. There might be an expectation that a child stays within the family business. The reality is that he or she might not want to. Conversely, the business owner can decide that a family member doesn’t have the skills or personality to lead.

One of the first and most difficult conversations to have is whether or not the family member in line for ownership has what it takes.

“It’s important to consider if the family member has the needed skills and temperament,” Dickinson said. “If they don’t, can they learn these traits over time?”

Even if they have the skills, do they have the interest? The successor should have a passion for the business and be willing to go the extra mile to make it successful, rather than simply viewing it as a job. Family businesses are rarely 40-hour-a- week jobs with guaranteed vacation time. Having a passion for the company helps the successor through the difficult times. Froese added that the individual needs to be teachable and willing to be mentored.

That’s as true in a family-owned business as it is in finding a non-family member to continue a legacy of a college program. When Houghton College embarked on a search for a new equestrian program director, Young was included in the process. She was given copies of all of the applications for the position, and she provided input to the academic dean and the Human Resources office. The search committee found a candidate that was an excellent fit for both the demands of the position and the mission stated by the college.

Per the written plan that Young and the college had created, the new director began teaching certain classes and managing specific aspects of the equestrian program while Young retained her position. This was done while the new hire was in the process of completing a Masters of Arts in Equestrian Education. Once the graduate program was complete, she was officially named the Houghton College equestrian program director, and Young received the lifetime honorary title of equestrian program director emeritus.

A successor’s suitability to run the business is as much about openness to other ideas as it is about skill or desire.

As Young’s successor took over teaching some of the courses that Young used to teach, Young shared her lecture notes and course outlines. However, she cautioned the new director that no two people teach exactly alike and that no two people draw from exactly the same knowledge base. Each person has had different opportunities in different settings to learn.

“I told her that I expected her to use my notes and procedures as a jump start, so that she would not need to reinvent the wheel,” Young said. “But I expected her to change, modify and revise the materials as she saw fit to improve the courses and make them more suitable to the needs of today’s students.”

Gaining Experience

When young family members are placed in positions for which they aren’t ready, it can be disastrous for the individual and non-family employees. Younger family members have to earn their positions in the company. If it’s a gift from their parents, everybody around them will know it. There’s just not the level of respect a leader has when he or she hasn’t earned it.

Developing the skills that earn respect happens inside and outside the company. Hall-McNary has required her sons to work in every position in the business.

“We cross-trained our sons on all aspects of the ranch, from horse training to client communication, teaching, showing, community involvement and knowing the family history,” she said.

Involving the next generation in all aspects of the business—even the mundane jobs such as taking out the trash or unloading trucks—teaches the heir how hard those jobs can be and how valuable that type of work is. It builds character and humility.

Experiencing every role in the company is a good start, but it’s not always enough. Dickinson said, “I recommend that all younger family members spend at least two years working outside of the family business.”

The easiest time to accomplish this is early in their career, immediately following completion of their “formal” education, whether that is college, high school or a trade school. This provides younger family members an opportunity to experience other ways of doing things and learn strategies that might help them once they come back to the family business. Learning doesn’t stop there.

“The younger generation should be willing to network with peers and attend industry trade shows and conferences to personally meet the movers and shakers in the industry,” Froese said.

Additionally, Froese recommended that aspiring business leaders take a self-awareness profile to better understand their skill sets and personality styles and also work on building communication and conflict resolution skills.

At Rockin’ L&D Ranch, Hall-McNary encouraged her sons to explore other opportunities in the world while letting them know there was always a place for them at the ranch. Her youngest son is an active member of the United States Marine Corps. He carries the American flag on one of the ranch horses at community events, but he has his own career and identity outside of the business. His wife, Liz, assists at ranch birthday parties and keeps the bunkhouse organized.

“This July, they’ll welcome their first child and the fifth generation to ride on the ranch,” Hall-McNary said. “That’s our biggest reward.”

Stepping Aside

The most difficult part of transitioning a business is letting go.

Young remembered that years ago, people started asking, “How will the college ever replace you?” or “How will the equestrian program survive without you?”

“You have to know in your heart why you worked so hard to build a program, and who you were building it for,” she said. “It needs to be for something or someone bigger than and outside of yourself. If you are driven to build something that will in some way make the world a better place, you will find lifelong satisfaction.”

Family and non-family leaders sometimes question how to identify when it’s the “right time” to step aside.

“When activities outside the business become more interesting, it may be time to let go,” Froese said, adding, “Health and energy levels are another indicator.”

Timing can also be dictated by external factors. “Federal and state estate taxes, retirement income needs of the current owner, etc., may be indicators it’s time to turn the business over,” Dickinson said.

Ultimately, losing passion for the enterprise is the final test.

When you start to lose the passion you have for the business, it’s time to think about passing it down. For some people, that might be five years in the future, whereas for others, it might be 30 years.

By natural design, family farm businesses can set up power dynamics that either contrast with the existing family dynamics or reinforce them.

In parent/children businesses, it can reinforce that mom and/or dad are in charge at home and in the business, which can leave employed children feeling disempowered. Or, if the younger generation is in the manager’s role, parents can find it difficult to cede control.

“Be open to change. Listen to the elders and youngsters,” Hall-McNary said. “Have discussions about what activities are income-producing and what are community outreach programs, and keep the business plan updated.”

It’s imperative that all relatives working in the business respect one another as colleagues during the work day. All parties— parents and children, uncles and aunts, nieces and nephews—need to show up to work as adults. “I can see the lightbulb go on with so many of my clients when they finally realize they have been treating a son or daughter as if they were still 12 years old,” Froese said.

Take-Home Message

Preparing to turn the business over to the next generation requires planning, preparation and candid conversations. The process is certainly not quick, and it might not be easy. But when sufficient attention is devoted to succession planning, the current business leader can rest assured that his/ her successor will carry on the family or business legacy.