Even though father Joe is continually complaining about the milk price, son Johnny and sister Susie do often want to milk cows on the home farm.
After working with many farm families to bring Johnny and Susie into the business, I have come to what I think are some insights along the way.
From now on I will refer to only Johnny, but if you have a Susie at your farm, you can switch the gender as you read.
Hard to do. Some of what I say will hit you the wrong way, some will scare you to death and some will make you mad.
If so, at least the following will get you thinking about one of the most difficult things you will do in your life: allowing your kids to take over, but if they don’t, launching them into another life.
The fight. First, if your kid is worth his salt, and likely to be successful milking cows in a more competitive dairy industry than what you cut your teeth on, he will fight you for control of your business.
Be ready for the fight, expect the fight and if it doesn’t happen, don’t hand over the farm.
Every dairy farm of the future needs a proactive, aggressive manager with a fire in his or her belly to out compete and produce milk at a lower cost than the neighbor.
If Johnny doesn’t have that when he is young, he won’t have that when he is older. Trouble is, there is no way to teach this, it’s either there or it isn’t.
Nothing is free. Second, Johnny needs to buy into the business, not be given the business.
Johnny needs to earn what he is worth, not be paid no matter what he is worth.
First, Johnny needs get out into the real world where he is not under Mom’s wing.
If Johnny returns, then he needs to start out working for a wage, until he fights and scratches to take over a portion of the management.
Johnny will have to learn, but he will fight and scratch and will take hold, and if worth his salt, the farm will make more money because he did.
Only then should he be paid more money than the hired man.
Make investments. Then, when Johnny proves himself by contributing to the bottom line of the farm, he needs to begin investing his own money in the farm.
Johnny needs to purchase the new tractor or chopper when the old one wears out, or take out the loan and make the payments for the new freestall barn.
Maybe he should even be buying the cows to fill that new free stall barn.
If, and only if Johnny contributes more to the business than he takes out, then he should be treated more favorably than Bill who left the farm and is working at the auto plant or Joyce who teaches school.
Equality? Now, Johnny shouldn’t have to buy back the stuff he bought when Mom and Dad’s estate is settled, even if the barn is on the home farm in Dad’s name.
But the tough part is divvying up Mom and Dad’s property, which a large part is often the home farm.
Johnny should get more than his sister and brother, Bill and Joyce, only if he has given more to the farm business than he has taken out in wages or a draw.
Retirement. Johnny also needs to figure out a way to fund father Joe and mother Mary’s retirement.
If Johnny is worth much he will push, nudge and eventually edge out Joe from management and ownership as Joe gets tired and older.
Johnny needs to initiate discussion, and yes, even negotiation, keeping in mind there need to be enough dollars to go around.
The more dollars, the easier it is, but it’s eventually up to Johnny to push the issue and come up with the dollar.
Each share should be partially but not completely determined by how much they continue to contribute in management, labor and capital.
Buy out. Funding retirement from the farm works when Johnny can see his way clear to take a family draw and at the same time invest in the farm business.
His investment in the farm business may take the form of buying out Mom and Dad, thus funding their retirement.
Or Johnny may invest in new equipment, buildings or cows while Mom and Dad take their draw from the farm business.
Either way there have to be enough dollars to go around.
Pass it on. This column will end with the gritty issue of how Johnny should get the home farm.
First, if Johnny can and wishes to buy the farm, usually on installment, then he will enjoy not only control of the farm but also more land appreciation than if purchased later.
Purchase is the most expensive way for Johnny to gain control of the farm, but with capital gain income tax liability being lowered to 10 percent to 15 percent of the gain, depending on the seller’s tax bracket, purchase looks much better than before.
If Johnny can’t cash flow land purchase, then he should consider just purchasing the income producing assets, cows, barns and equipment.
Siblings, too. Giving the farm to Johnny and possibly a portion also to Bill and Joyce is a second option.
Giving the farm has the least transfer cost but is lacking in funding mom and dad’s retirement.
Mom and dad may not be doing Johnny a favor if they give the farm to him because he couldn’t make it otherwise.
Inheritance. The most frequent farm transfer method is inheritance. I call this the “Johnny didn’t do it” way.
I may be too hard on Johnny, but I have seen the following happen too often:
Johnny gets the farm when he is over 50. Johnny has been a hired man all his life. Johnny lives off the depreciation of the farm until the farm is sold for lots when he dies.
(The author, an OSU Extension ag agent in Lorain County, is a member of OSU’s Dairy Excel team. Questions or comments can be sent in care of Farm and Dairy, P.O. Box 38, Salem, OH 44460.)