Our youngest son is graduating from college, and I have encouraged him to work off the farm for a couple of years before he decides if he wants to farm or not. I think this will help him learn what it is like to work for someone other than his dad, and decide if he really wants to farm. Plus, he’ll earn some money. We milk 260 cows and farm 600 acres in central Wisconsin. Our oldest son works full time on the farm with us. My wife and I are in our 50s. We haven’t done any estate planning. We have no debt.

I’m wondering if we should talk to the attorney about forming a limited liability company and begin the process of bringing our oldest son into the LLC now, or if we should wait two years and see if our youngest son wants to farm and do it all at once? Please advise.

Tom Kestell: Congratulate your youngest son on his recent graduation. I would encourage your son to seek out a job that would enhance his practical education and give him skill sets he can later bring back to the farm to benefit the farm and himself. Maybe he will find a job that turns into a lifelong career for him. But if not, the experience should be just as valuable as his college experience. A good job in the agricultural field will give him insights and a view of the service side of agriculture and the infrastructure that supports ag.

If your son decides to work in the artificial insemination industry, as an example, there is a tremendous amount of information and an array of learning experiences that he will be exposed to that will benefit him in the future. The same is true if he becomes involved in the agronomy side of farming. A hands-on two-year job can give lifelong career benefits that will greatly enhance the value he brings back to the farm — or to any other career paths he decides to pursue.

As far as estate planning goes, now is the time. You are planning not only for your future, but for the futures of your sons and their families, as well. A well-developed estate plan should lead the way and act as a road map that your entire family can rely on, offering peace of mind that you are all a team working for a common goal.

Start the planning process with your oldest son to ensure him and yourself that you can plan and develop a workable structure for your future together. Keep your younger son informed of the process, and leave it open to him becoming part of the LLC or whatever plan is developed later. Don’t make it any harder or easier for him or his brother. You don’t want either son to feel like his contributions are not appreciated.

Your estate plan is a blueprint for your future. Just as you would have a blueprint to build a new home or new milking parlor, it guides you to not make costly mistakes in your family’s future. Everyone’s input can be valuable. Seek their advice and counsel through professionally guided meetings and discussions. But in the end, rely on an expert to round off the sharp edges that you and your family are too close to see. Measure twice and cut once!

Sam Miller: First, congratulations on your excellent financial position and the potential ability for your business to continue with the next generation. I think you are on the right track to visit with an attorney about estate planning, including exploring an entity to bring in the next generation. I would also suggest visiting with a dairy business consultant or Extension ag educator to complete a business plan exploring personal and business goals for you and each of your sons. You could easily set up an LLC to bring in the son working with you now and add your second son later. By going through this process, you can determine if all of you are on the same page.

Katie Wantoch: I’m happy to hear that your children are interested in farming. It sounds like you are taking stock of your farm and family. This provides you an opportunity to step back and look at the farm operation more broadly. It will also allow your sons to know about the farm like you do. As you consider farm business succession, it is important to gather details on assets, business structure and current operations to have a full understanding of where the business currently stands.

It’s also a great time to talk with your family to help identify issues that may need additional discussion. Can everyone work together? Are you ready to give up some decision-making and control? Does everyone agree on a vision for the farm business (enterprises, size, etc.)? You’ll be able to meet with an attorney to discuss what your family’s and the farm’s future looks like after these conversations.

Is it time to sell some land?

We expanded our farm from 70 cows to 230 cows in 2015 to bring our son into the operation. We built a freestall barn and put a milking parlor in our old stanchion barn. We also bought the neighbor’s farm to increase our tillable land from 200 acres to 360 acres. Our son and his wife live in the house on that farm, and we house most of our heifers on that farm. We still owe $600,000, and with low milk prices, we are struggling. Fortunately, my wife and my daughter-in-law have full-time jobs off the farm. They provide health insurance, and their income pays for all our family living expenses.

We are wondering if we should sell 60 acres to help pay down our mortgage. A neighbor offered to pay me $8,000 an acre for the 60 acres. We paid $5,000 an acre in 2015, which included the house and buildings. We wouldn’t be out of debt, but even after paying capital gains tax, it would make life a little easier around here. What are your thoughts?

Tom Kestell: I’m happy to see you have the ability to think outside the box. Many times, we continue to do the same thing over and over again and somehow expect a different result. This is a good time for a full evaluation of your present and future financial challenges. With the limited information I have, your present debt should be manageable, so why is it such a burden? Before doing anything drastic, find a confident financial adviser who has earned the respect of clients. But most importantly, you and your family must be able to develop a good relationship with this person. Challenge them to give an unbiased review — from 30,000 feet, as they say — on all aspects of your farm.

What are your production costs? What are your production levels? How does this compare to your counterparts in the industry? How efficient is your farm? What is your cost to produce 100 pounds of milk? What is your cost for raising your crops? Is it profitable? What are your labor costs? In your consultant’s opinion, what things can be done to improve individual enterprises on the farm and efficiencies on the farm? What can be done to lower costs, improve margins and improve overall net income? Go deeper into the details. How does your quality of milk compare? Look closely at the daily, weekly, monthly and yearly expenses and income. What is making money and what is losing money? Then, do more of the things that make money and minimize the time spent on things that do not make money.

They say the devil is in the details, and this is certainly true in farming. Listen to what the financial consultant tells you and see if it makes sense to you and your family. Sometimes making small changes can have spectacular results. If after due diligence you still think selling the 60 acres is your best option, I have no problem with your decision. Farming should not be a constant daily struggle. Just make sure this is the best option for you and that the consequences are not worse than the cure. Good luck!

Sam Miller: I commend you for exploring options to manage the business for the long term, with one option of shrinking the business to provide capital to reduce debt. On the surface, this appears to be a viable option. What will your feed situation be like by selling this land? If you were selling excess crops, then selling 60 acres would have little impact on the remaining dairy business. If you need all of the existing acreage for forage needs, then this plan needs further scrutiny. Review your feed and nutrient management plan to be certain the dairy operation can meet their respective needs with fewer acres. If the answer is yes, you have a good plan.

Also review the other elements of the dairy business. Are you signed up for Dairy Management Coverage through the Farm Service Agency? Examine all your other dairy income and expenses to see if you can improve margins — small changes can add up over time. Good luck with your analysis.

Katie Wantoch: Low commodity prices can take a toll on a farm business. I encourage you to complete a financial analysis for a historical review of your farm’s financial position and performance. This financial analysis provides a basis from which to plan for the future of the farm business and draft pro forma financial statements. A pro forma financial statement is defined as a financial statement that uses hypothetical data or assumptions to develop projections for a certain period that hasn’t occurred yet. Pro forma statements are common types of forecasts or financial projections that can help with the farm’s future and answer the critical what-if questions when designing those plans.

The main difference between historical and pro forma statements is that assumptions and adjustments must be made when creating forecasts or projections. These projections are your best estimate of future income and expenses over a period. You might review revenue and costs from the last period, along with reviewing commodity market outlooks, and make necessary adjustments when determining future income and expenses. Understanding your farm business’s financial history provides a basis for you to make decisions and plan for the future.

Agrivision panel: Tom Kestell, dairy farmer, Sheboygan County, Wis.; Sam Miller, retired managing director, group head of agricultural banking, BMO Harris Bank; and Katie Wantoch, University of Wisconsin Extension statewide farm management outreach specialist/professor of practice. If you have questions you would like the panel to answer, send them to: Wisconsin Agriculturist, P.O. Box 236, Brandon, WI 53919; or email [email protected].