Recently I had a discussion with a farm family interested in bringing a son into the farm business.
The discussion revolved around the many questions and concerns family members have when making a decision as important as this.
Direction. It became obvious to me that none of the parties involved had a common understanding of the direction of the business and what each wanted to accomplish.
If you are in this situation, the following paragraphs should help answer some of your questions and provide direction.
Where are you going? Making plans for the successful future of a two-generation farm business can be compared to planning a family trip.
Plans include short-term decisions such as what you will do and where you will stay the first night.
However, long-term plans, such as your final destination and the length of time it will take to get there, also are important.
When some farm families begin thinking of farming together they lack long-term plans of where they are going, how they will get there and how much time it will take.
Instead, they focus on the initial start-up and leave the overall destination of the business to chance.
For a family trip to be successful, the family members must agree on the destination and what they will do. When they arrive, however, each member may have a different idea of what they want to see and do.
If these factors are not taken into consideration when planning the trip, the trip will not be successful.
The same is true for two-generation farming arrangements. All parties must share a common vision of their future together in the farm business.
Goals. Many families lack formal goals. Instead, they have vague, verbal ones that are not ranked in any priority. Identifying the goals of all parties involved is an important part of planning for the future of a two-generation business arrangement.
Process. The first step in the process is to divide the family into three groups: parents, farming children, and off-farm children.
Each group should individually develop a list of goals. Within each group the goals should be compared and examined.
Finally, the family should come together and share, compare, and re-evaluate their goals.
Are there any conflicting goals among the parties? By communicating goals to each other, you can identify conflicts.
If there are any conflicts, reconcile them before proceeding.
Making it fair. An important and, for some, difficult decision is how to treat each family member.
Parents are often concerned about the fair treatment of each child. However, there is a difference of opinion as to what is considered fair.
Some believe each child is entitled to an equal share of the family/business assets. Others believe the farming child should receive special consideration.
Only those involved in the process can determine what is fair in a given situation.
Equal vs. equitable is something many parents struggle with. Equal is not always equitable.
The equal division of business property among farming and nonfarming children may not lead to the equitable division that was planned.
For example, if the farming child helped build the business, he/she may be entitled to a larger share of the business assets.
Once parents have decided what is equitable, they face the problem of deciding how to actually divide the assets.
For example, if all children are to be treated equally, and one child is given a certain piece of property, how much compensation should be given to the other children? Or, if one child has the use of a certain asset, how do the parents compensate the other children?
One method is to value the asset as if it were an arms-length transaction with a nonfamily member.
Compensation. The difference between the arms-length value and the preferential value to a child will determine the amount of compensation to each of the other children.
Bringing a son or daughter into the family business is a goal shared by many families and is one that takes a lot of planning to be successful.
If you are considering forming a two-generation farming partnership, contact your extension agent, financial planner, attorney and other experts to guide you through the process.
(The author is an agricultural extension educator in Tuscarawas County and a member of the Ohio State University Extension DairyExcel team. Questions or comments can be sent in care of Farm and Dairy, P.O. Box 38, Salem, OH 44460.)