As a new farmer, you may be considering working with an existing farmer to transition a farming operation. This may be a transition of ownership from a parent or other family member, or you may be seeking tenure on an existing farm you have come to know through other sources, such as UVM Extension’s Land Access Database. In any situation, farm transfers are a complicated business– financially, legally, and emotionally.
UVM Extension Agricultural Business Management Specialist, Bob Parsons, joins our blog this week to talk about farmland transfer from the farm owner’s perspective. Hopefully, this will give you some insight into the complexities of these arrangements and how best to prepare yourself to address the challenges.
In the mist of the production year there are always a few farms that confront the question of business succession. This is not a easy topic to consider while harvesting, marketing, and concerned if the equipment will operate today. But someone raises the question….”what is my future in this farming operation?”
While out on a farm recent farm visit to review farm finance projections, the discussion quickly went to business transition. The farmer was very concerned about how to bring a daughter and son-in-law into the farm business. We went into a discussion that resulted in more questions than answers. This is a complex topic and requires a lot of thought. One big aspect that farm families have to face is that no one can tell you what you ought to do, only what you need to consider. Its your family, your business, and your decision.
Topics we discussed went from compensation to gifting or selling of ownership shares, to updating of wills, to treatment of other children. That’s a lot.
First off, a tough question has to be addressed….is the family business big enough to handle another family? This does not mean enough work but rather enough cash to pay another family member without putting the business at financial risk? And this cash has to come from profits. You have to be very rational…a farm big enough to support one family is generally not big enough to support two. So how do you raise enough cash to pay the extra family member…usually have to increase sales.
Can the new family member fit into the operation? Can you work with this person day after day? Do they irritate you for some reason? Do you irritate them? Will it be a congenial work experience? Let’s be honest, just because they are family doesn’t mean you will get along. Don’t put the business at risk when the family does not get along. Family is family but business is business.
What do you pay the additional family member? In this case the daughter’s family was earning well over $50,000 and would like similar compensation. The parents were a bit taken back by this as they live quite conservatively and reinvest most profits back in the business and to repay debts faster than scheduled. We discussed how different standards of living and compensation can lead to family squabbles.
What is the family member going to be…a manager or manual laborer? This can be a tough situation on farms where the owner is the boss, chief financial officer, and thrives on their involvement in the business. Is there desire for the senior generation to distribute authority or responsibility? Be honest with yourself and family. It has to be the right time. Most family members don’t want to come in and just be a manual laborer. And if you have other employees who work very well together, how would the new family member fit into the operation? Will experienced workers resent a daughter or son-in-law suddenly becoming a new boss with different demands and expectations?
Now we have to do some planning. The younger generation wants to know where the business is going and how they fit in. They want to be owners someday, not laborers. Now we have to worry about where the business is going and how to transfer management and ownership to the younger generation.
After leaving the farm with a lot to think about, we will get together again and discuss the above issues and get the process moving one way or the other. There is no one recipe for business transitions. The advice I left them with:
- Determine if there is money enough to pay for the additional family members.
- Let the daughter and son-in-law work for a trial period for 1-2 years.
- During this period come to a decision on how to bring them into the business by discussions with family, off-farm family, farm advisers as UVM Extension, accountant, and legal advisers.
- IF the trial period goes without any problems, all have to agree on the road map for the future.
- Then start on the journey to farm business succession.
Sounds simple but highly complex for most families! Good thing there are many resources to support farmland transition!
UVM Extension New Farmer Project Land Access Toolshed Resources for farm seekers.
UVM Extension Land Access Database Farmland owners can post land opportunities and farmland seekers can search the database for land.
UVM Extension Family Farm Transfer Resources Resources for farmland owners.
Land for Good Farmland transfer resources and services for farm seekers and farm owners.
Post authored by Bob Parsons, UVM Extension Agricultural Business Management Specialist.