Farm Succession Planning: Money Matters
I just finished a series of late summer and early fall presentations at several farm shows. After speaking on family business, many questions and stories began to sound quite familiar. Attendees shared information about their family and business and asked, “How in the heck did we get in this mess?”
The Common Story:
For several decades, the senior generation has worked very hard to build a progressive and financially strong business. They’re paying down the debt of their investments. After one of their adult children graduates from college, they’re eager to add him or her to the business. To utilize their strengths and justify the additional expense, the senior generation decides to expand the operation with more rented acres, an upgrade of equipment, and of course an increase of debt. Two years later, the business invites adult child #2 to join the business and the senior generation creates and finances a trucking enterprise as part of the business.
Now they have two additional full-time employees who expect paychecks and benefits. They’ve increased debt with full expectation to increase the business income. Then the crazy year of 2019 comes along with Mother Nature’s extremes, global politics, another year of low market prices and financial stress. Their banker is asking questions. All family members are wondering, “Are we going to make it?”
The Reality Mirror:
My response often includes these questions:
- Did you have a business plan based on accurate information and projections as the business changed?
- Where’s the business plan today?
- Where’s an accurate accounting of financial ratios and benchmarks?
- Where’s the productivity and profitability break down?
- Where’s the risk protection?
- Where’s the financial security and independence for the senior generation as they approach retirement years and needs?
Every year, the business needs to know where it stands financially, where and when it might grow, and what it might need to let go. The desire, work and efficiency must be matched with effectiveness. I encourage all family members to meet with advisors to receive insight and recommendations. Include lenders in the conversation. Make sure all are looking at liquidity, solvency, profitability, financial efficiency and repayment. Solid advice is necessary to maximize every business asset, including the people in the business. Discuss off-farm income and please keep spouses informed.
I understand the senior generation has years of important experience and a ton of ‘grit.’ As parents, they have had the best intent and heartfelt desire to include worthy family members in the business. It’s important they not lose track of good business practices. Each year an assessment must be made – does the cost to the business equal the value brought? Then it’s time to look at the viable options and make decisions. The results may not be their first choice, but it may keep them in business.
Jolene Brown, CSP, CPAE
Jolene Brown is a farmer, professional speaker, author and champion for the family owned business. She’s from West Branch, Iowa, USA, and travels worldwide sharing leading-edge best practices that have the power to increase productivity, profitability and peace of mind. Her passion combined with her fun-filled spirit and valuable information brings humor, hope and helpful ideas to the people of agriculture. For more information and to check out her speaking availability, contact her at [email protected], www.JoleneBrown.com
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