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November 27, 2023
by Wesley Tucker
Being a part of the family farm business is an “opportunity,” not an “entitlement.”
Here’s a warning for young producers: Don’t expect to be given anything, but ask for a road map so you can see how what you contribute will lead to your compensation — either now or in the future.
Last month, I mentioned a phone call from someone who spent 20 years helping in the family business and received nothing for it. As expected, the article provoked a wide variety of emotional responses from readers.
Many thanked me and shared their personal stories of hardship. Others challenged the concept of sweat equity and discussed the impact unequal shares can have on family relationships. After reading so many responses, it seemed important to clarify some issues.
One reader stated, “Just because someone stayed on the farm does not mean they deserve the farm.” This may surprise you, but I couldn’t agree more.
Trust me, through my years working with families, I have witnessed the gamut of scenarios.
One of my mentors was Dr. John Baker, the founder of the Iowa Beginning Farmer Center. Dr. Baker was someone I looked up to, and I always appreciated when he would say, “Compensation should equal contribution.”
Ever since, I’ve used that as the basis for navigating these difficult conversations. And it starts with a question: Was your son or daughter adequately compensated for what they contributed to the operation?
I have seen the son or daughter who was Mom or Dad’s favorite stick around, feeding off their parents. The child received a salary or commodities well in excess of what they contributed each year. When the parents passed, they inherited everything.
Alternatively, I’ve seen siblings who stayed home and worked to keep the farm alive for Mom and Dad. Year after year, they received compensation well below what they could earn elsewhere and, in the end, received the same as others who had no interest in the farm.
Your gender does not dictate your allocation.
I believe in equal opportunities for all. I am adamantly opposed to the “son-only” mentality. Daughters should have the same opportunities as sons.
Readers feared an unequal split of the farm had the potential to harm family relationships. I agree, if it’s not discussed ahead of time. Open communication early on is so important.
So, what is sweat equity? It is an imbalance between compensation and contribution.
If someone in the family business is contributing more than they are being compensated, that difference is sweat equity. The difference is being banked to hopefully be redeemed at a later date. Think of it like a savings account with deposits and withdrawals. What is each member of the family business depositing and withdrawing from the operation each year?
Unfortunately, farming is often not very profitable. It’s difficult to adequately compensate everybody. We do the best we can spreading limited income across family members. But there’s not much cash available each year for withdrawals.
Let’s face it, we’ve all said it, farming is asset rich and cash poor. So, we need to assess contribution differently. Consider these questions:
What happens to the appreciation of assets such as land?
Who gets credit for those deposits gaining value?
Should your son or daughter be earning a portion of them?
One key question to ask yourself is: Would your operation be gaining the same value if they weren’t there? This can help guide how much of the appreciation should be allocated between the senior and junior generations.
To avoid hurtful or harmful family farm succession situations, open dialogue is needed before critical life decisions are made. If everyone fully understands the opportunities and implications, then they can make the best-informed decisions for their future.
Good luck having those difficult conversations.
Tucker is a University of Missouri Extension ag business specialist and succession planner. He can be reached at [email protected] or 417-326-4916.
Learn more about navigating multi-generation operations at the Farm Futures Business Summit in Coralville, IA, Jan. 9-11, 2024.
Read more about:Farm Succession
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