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Analyze farm’s financial success to determine what can be improved

farmstead at sunrise
EVALUATE: You should review your farm income and expenses, and calculate your farm’s financial ratios.
Agrivision: Start by talking about the future and what each owner has for a vision.

I am 35 years old and milk 300 cows and farm 500 acres with my uncle, who is 70 years old. I manage the business and strategic direction of the business. I own 60% of the operation, and my uncle owns 40%. Our business is very successful, but my question is, how does the business grow? My uncle doesn’t need growth, only income.

Hodorff: Your question may be asked by many dairy producers your age. One idea is to freeze your uncle’s asset value. Then any growth in the business would be added to your 60% ownership. The value of your shares would increase, and your uncle’s shares would be frozen at the current value. To do this, you would need to involve your accountant, and possibly legal counsel. If your ownership percentage is known, then you must be involved with some sort of accountant.

You could start by talking about the future and what each owner has for a vision. In my view, you would set a percent of return on your uncle’s shares. I don’t know your process now, but with some advice from your accountant, you could start the conversation. If you are managing the business and strategic direction of the business, I would hope you are compensated according to your responsibilities. You are managing and supplying labor to a $1 million-plus business. 

Miller: This is a great time for you and your uncle to go through a strategic planning process. Reach out to a qualified dairy business consultant or Extension ag agent to assist you in this process. You will likely work on a transition plan to buy out your uncle’s interest. You can also discuss growth plans to find out if he is interested in continuing to reinvest in the business, or if he is satisfied with the current arrangement. If you decide to grow the dairy herd, be certain you have a market for the additional milk. Good luck with the planning process.

Wantoch: I’m glad to hear your business is successful. If you haven’t already, I would encourage you to analyze the farm’s historical financial performance. First, you should review your income and expenses, and calculate your farm’s financial ratios. Analyzing your financial statements can reveal some useful insights into the strengths and weaknesses of your operation. Kevin Bernhardt, Extension farm management specialist, University of Wisconsin-Platteville, explains that business profits can be made: 1) by being efficient with your operations (earnings), 2) by getting the most out of your assets (turnings), and 3) by leveraging your money (leverage). By conducting this analysis, you should be able to identify areas of the business that could be improved for production efficiency and profitability, and new opportunities in the future.

Agrivision panel: Doug Hodorff, Fond du Lac County dairy farmer; Sam Miller, managing director, group head of agricultural banking, BMO Harris Bank; and Katie Wantoch, Dunn County Extension agricultural agent specializing in economic development. 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 them to [email protected].

TAGS: Dairy
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