By Tony Kitsos, Dairy Business Program Manager
I recently had the opportunity to work with and advise three farm business owners in structuring the transition of their businesses to prospective buyers who were not family members or neighboring farmers. As advisors, we often hit a wall when farmers express to us that there is no “next generation coming along”; that their children and relatives are not interested in becoming farm owners. Many family members state that they have no interest in working that hard for so many hours only to have too little money to show for it. Others say that they just want to follow their own path to success, usually outside of agriculture and the family business. Such was the case for all three of these farm businesses.
Each farm took a couple of years to find a young, knowledgeable and energetic person to bring in to their thriving businesses. They wanted to show them the ropes while they had the energy and health to provide mentorship. Let’s face it… with the way values of farmland, cattle and machinery have risen over the last 20 years, it’s extremely difficult for a young farmer to walk into a bank and borrow enough money to buy the business and then survive through the first two years of operating expenses unless there is plenty of cash to start with. Lenders do not want to see a new farmer fail for lack of cash and equity. The current owner has to make a decision: Do I sell outright to another farmer or bring someone new into the business? The approach is similar to that of a typical transfer – determine a period of time to “get up to speed” on the existing business, another block of time to begin the sure and steady transfer of certain assets to the incoming owner and then an outright purchase at the end of the trial period.
In each case, the owners had set up a combination of asset transfer for revenue increases over a specified schedule. The implicit agreement was: “Make this business better and more profitable over the transition period and it will be good for both of us.” In these scenarios there is mutual benefit from the continued and increased success of the business. Careful attention must be paid to the development of a sound exit strategy – one that covers both parties in case of a falling out or a change of heart. So gather in all of your trusted advisors, lay out a plan, let them shoot holes in it, restructure, and most of all don’t give up. There is a new generation of farmer anxious to get started with the right tools for success.
The Vermont Farm Viability Service Provider Network met on October 4th. This meeting of consultants and business educators is a place to share current resources to enhance farm business planning in Vermont. Topics of the day:
- NOFA-VT has produced cost of production benchmarks for carrots, onions, lettuce, winter squash and potatoes. The study has also produced whole farm financial benchmarks. Go to the cost of production benchmarks to see the sales per acre, costs per acre and net profit per acre for these crops.
- VT Agency of Agriculture, Food and Markets announced the first round of Vermont Produce Safety Improvement Grants that farmers can apply for to improve on-farm produce safety. Farms can also get support for an On-Farm Readiness Review to have a one on one conversation on how the farm is doing on produce safety in advance of formal inspections.
- Dairy Industry Overview: discussions continue about how the oversupply of conventional and organic milk is impacting farm gate prices. Stagnant or declining prices paired with regulation/certification driven investments present a difficult situation for dairy business owners to navigate. Farm transfer planning is further complicated as the outlook for many dairies remains uncertain. Back to brass tacks, this group talked about the need to revisit accurate and responsible asset valuation on dairy herds and how to develop pro forma statements that negotiate short term cash flow shocks.
- Farm to Institution Spending: active research continues to explore possible opportunities to enhance regional institutional spending (schools, colleges, hospitals) on agricultural products. The looming question remains: What will it take for farms or distributors to find solutions that get the right products to the buyers at the right price.
Farm managers have dug into winter business planning projects and by now everyone has identified key questions that require analysis, research and technical information. UVM Farm Viability has filtered the internet universe and posted the best resources to assist managers with legal decisions, market research and financial records. Visit our Resource Library and open up the Legal Toolbox, Market Toolbox and archive of online recordings.
Emotional Anxiety, Entanglement, Conflict…finding a Family Leader, Neutrality and Coach-ability. These were the concepts discussed at a December training for Farm Viability business advisers provided by Erik Thompson ( http://www.thompsonleadership.com/ ). Dr. Murray Bowen described the natural emotional processes that shape how families and social units function. Bowen Family Systems Theory provides valuable concepts for farm families and farm business advisers seeking to advance common family goals and aspirations in a productive way. It is not easy! Some of the highest risk forms of chronic anxiety in a family system manifest themselves in forms of avoidance and “over-tolerance of irresponsible behavior.”
To move past that, families and family coaches need to test their own emotional maturity to promote the best outcomes. Family leaders will develop , according to Bowen ” ….with the courage to define self, who is as invested in the welfare of the family as in self….whose energy goes to changing self rather than telling others what to do….”
Family coaches and business consultants work to establish emotional neutrality and emphasize coachability from their clients. For more on Family Systems click this link to the Vermont Center for Family Studies : http://www.vermontcenterforfamilystudies.org/
You can also check out trainings for Social Sustainability on Farms training programs through Northeast SARE: http://www.uvm.edu/~vtsare/?Page=projects.html&SM=submenu.html