MSU Extension Farm Management

Family businesses, including family farms, create opportunities to: build great relationships; accomplish goals together, nurture skill development in the next generation, and see the business continue beyond the current generation.  Family businesses can also challenge: work vs. home life balance, conflict resolution skills, communication, and succession of the business.

According to a 2012 Harvard Business School study, the top three reasons that family businesses fail are: lack of clear leadership structure; inability to separate business from personal; and inadequate preparation to handle complex issues such as succession, exit or death of a partner, and growth of the business.

Family businesses can improve their chances of success by thinking through some critical areas before they bring on new family members as employees or partners. These areas for consideration include Hiring, Management/Ownership Opportunities, and Exit Strategies.

Hiring family employees can often look very different from hiring non-family employees, but should it? As a Michigan State University Extension Educator, many farms that I work with insist on a formal break between the time where a son and daughter see work as “chores”, and when they are formally hired.  This break could be college, or it could be a period of employment outside of their family farm. The break also creates an opportunity to set a more formal working relationship, including an interview.

“Interview”, you say, “but they’re family!”

I believe that family members deserve an interview by the farm owners. If we fail to give them interviews we can perpetuate an idea of entitlement, rather than earning an opportunity.  We also do them a disservice by ignoring the question of whether this hire makes sense for both the employee and the business.  Is there a need for another employee or are we just creating a spot for them? Do the family member’s skills meet the need, or can they be trained?

I also encourage farms to have a job description for the position that they wish to fill with the family member. Job descriptions help the farm management think through what is needed to be successful in this position, and what you expect from the employee. Job descriptions also help you communicate to other employees, the role of the new hire. 

The third area that we want to succeed in, is getting employees off to a good start. Bringing family members on-board, should still include: making their first day memorable, setting expectations and goals, assigning a mentor employee, and meeting with them more frequently to give feedback on expectations and goals.  We want them to be successful, so do not be shy about providing encouragement and also redirection when necessary. 

What if you believe a family member may be ready for a management and/or ownership opportunity? I believe family members should get management opportunities: if they are a good fit for the business; if the business has a need to be filled; if the business can grow to bring them in; and if the family member has earned the opportunity.

A good fit.  Again, we are not doing the next generation a favor if we bring them into a position that they are likely to fail in.  Does the family member have the people management skills that are so critical to today’s businesses?  Does the family member show a desire to learn about management and improve their management skills or are they better suited to remain as a non-management employee of the business?  What areas do they excel in, and how can the business benefit from their skills?

Business’s need for management. Where is the management team weak now, and how could this new hire help?  What goals could be achieved with this additional management team member in place?  Looking ahead to farm succession, how could this individual fit into the future of this farm business?

Can the business grow to bring them in? When we are bringing in additional family members to the business, the business income needs to grow to accommodate the extra draw. Experts suggest that each additional new management team member needs to bring in at least an additional $100,000 net farm income into the business. Can the farm accomplish this through a simple growth in size, or will it need to diversity? Will someone have to leave in order for this person to come in?

Has this family member earned the right to join the management team? The family member should have proved themselves as a good employee first and earned the right to become a management team member. This process doesn’t need to take a long time, in fact, I’m a big proponent of the next generation gaining some farm management/ownership in their 20’s, and if proven, having the majority of the business controlled by them by their 40’s. 

Bringing on family members as employees and eventually managers/owners can be a great opportunity for both the individual and the business. We can improve the success of that new relationship by being clear in our expectations, maintaining separation between work and family, making sure it’s a good fit both the short and long term, and planning exit strategies before the employment begins.