My wife and I are both 30 years old. We have a daughter who is 3. I farm in south-central Wisconsin with my dad and his brother. We milk 175 cows, raise 150 heifers, and farm 350 owned and 250 rented acres. My uncle isn’t married. Both my dad and my uncle are in their early 60s and are slowing down a bit but haven’t discussed retirement with me. My wife and my mom work full time off the farm. I believe my dad and uncle owe about $300,000 on the farm. We have a freestall barn and a double-10 milking parlor. I haven’t been able to build any equity in the farm during the 11 years I have worked for them. I’m wondering, if I talk to my dad and uncle about building equity, do I start with buying the cows or the machinery first? What are some ideas of how I can build equity in the farm and not just work for wages? Who should we talk to? I have one sister, but she is not involved in the farm. Please advise.
Tom Kestell: My first suggestion would be to start talking with your wife and planning your long-term goals. Try to envision your long-term goals as a couple and also as a family. Next, I would write out talking points that you would like to discuss with your dad and your uncle. See what your dad and uncle envision as their future. The best place to start is to get everyone on the same page and to understand each other’s goals and needs.
It is very difficult in many cases to build up equity in a farming operation unless a plan is developed to do so. I would think about forming a formal working relationship such as a limited liability company where you could earn shares of the LLC over time. There has to be a detailed plan about how this will be done, not just a “maybe this or maybe that.” You all need to communicate with a transition expert if this is the goal that you all can agree on. The key component is to communicate and freely share everyone’s desires and goals, and then to put a plan in place that everyone is comfortable with and supportive of.
The second key thing to remember is that everyone has skin in the game, and the success of this plan depends on everyone working together for a mutual satisfactory outcome. The third component to remember is that everyone needs to communicate and participate in the forming and developing of this plan. Good luck with the first steps to the last step. And remember to communicate, communicate and then communicate!
Sam Miller: Your situation sounds like you need a family meeting to discuss the future of the business and your place in it. Prior to setting up a meeting with your parents and uncle, discuss personal and business goals with your wife. Then, raise the topic with your parents and uncle about discussing the future of the business and your place in it.
The Wisconsin Farm Center at the Department of Agriculture, Trade and Consumer Protection has resources including consultants who can facilitate and guide the discussion about this topic. By including a facilitator in this discussion, a more productive conversation is likely to take place. They have the experience of other transitions, can ask difficult questions as a third party, and can set an agenda for initial and subsequent conversations.
Keep in mind, this process will take time and will require some work on each person’s part to come up with a plan that can work for all the parties. Starting this conversation soon will benefit each of you as well. Good luck taking the first steps on this path.
Katie Wantoch: Succession planning is not easy and encompasses many pieces of a puzzle. I give you credit for wanting to start the conversation with the “owner” generation about the transfer of the farm business to the “successor” generation. First, I would encourage all generations involved to answer the question, “Where are you now?” This question is very broad, and answers may include history of the farm, family members and employees involved, business financial information and decision-makers, ownership of farm assets, list of advisers, etc. Take an inventory of where the farm is and how it got here. I have found that it is easier for farmers to discuss their farm’s history and the success of the farm up to this point than it is to talk about the many unknowns of the future.
This question may provide you with an opening to discuss transfer of assets. Though I might suggest that you consider talking about the transfer of management before assets. As a wage employee of the farm, I’m not sure if you have the opportunity to make any day-to-day decisions or other more significant decisions on the farm. You may be able to seek some inroads with your dad and uncle by requesting to take a more active role in the decision-making process.
Extension’s worksheet on Transferring farm management for a successful farm succession is a resource that would be helpful to assist with your future conversations. You may also want to connect with farmers in your area who have or are going through a farm business transition to seek advice and guidance for your next steps.
Ready to expand business
I am 28 years old and I live in the northwestern part of the state. I work full time off the farm, and I do custom baling on the side. I own a round baler, a couple of older but reliable tractors, a disk mower, a couple of trailers and a skid loader. I’ve built up a good clientele, and now I think I’m ready to make this a full-time business. Some of my customers have approached me about custom-harvesting haylage and corn silage in addition to baling hay and straw. I keep my equipment at my parents’ farm, and I have my own LLC. I am wondering how I can make this work. Who should I talk to? How many acres do I need to make this a profitable venture? Should I rent equipment or buy used equipment? I’m pretty handy at mechanical work. My dad grain farms but said he would be happy to help me. Please let me know what you think.
Tom Kestell: To be 28 years old and full of ambition and dreams! Congratulations on your success to date. Happy clients are what makes for a successful business — I’m sure you realize this by now. The first thing I would do is to evaluate the potential for business opportunity in your area. You will need not only customers, but customers who are able to compensate you for your services.
There are many other factors to consider when you are talking about switching your operation from a one-man show to a business venture that requires a crew of people to operate successfully. One question to ask yourself and your clients: Who will be responsible for the support network needed to operate a custom-harvesting business? As an example: Who will supply trucks for haylage or corn silage harvest? Who will supply pack drivers? Who will supply drivers for the trucks needed? Who will coordinate this team?
After exploring the potential for business in your area, I would then talk with other operators in your area and also in other areas of the state to learn the pitfalls and the opportunities that other custom operators have experienced. It is always best to get advice directly from those who are doing it. This is not a venture to do “on the job” training — it could be quite expensive. On the other hand, mentoring from a highly qualified custom operator whom you admire would be extremely valuable. Also, working with one for a period of time could give you insight into their secrets to success and give you an idea if this is truly what you would like to pursue.
I think good used or leased equipment are both viable options. I would not, however, acquire equipment that is not supported by great dealers, because this is a very time-sensitive business. Backup support both in parts, technical assistance and even with equipment becomes essential during busy times of the year.
A great deal of planning and investigation is essential to make full-time custom work successful. As the old-timers say, “Measure twice; cut once!” It’s always best to limit your downside exposure, and leave room and plan for upside potential. Good luck.
Sam Miller: Congratulations on building up a nice business to this point. You indicate you want to make this a full-time business; however, not all of teh tasks are possible to complete on a year-round basis. Start your analysis by completing both a forecast of income and expenses, and a monthly cash-flow plan for the business. Since you are performing custom work, accounts receivable will be generated, which means that you won’t be paid in cash at the same time you perform the work — hence the need to complete a cash-flow forecast. A University of Wisconsin Extension ag agent, farm technical college instructor or accountant can assist in completing the forecasts.
Don’t forget capital replacement and repairs in your plan. You may need to find additional winter-season work such as snowplowing or equipment repair to allow this to be a full-time business. Good luck planning to take your business full time.
Katie Wantoch: Congrats on growing your farming business over the years! It sounds like you would prefer to be farming full time, so great job on putting in the time and effort to build up your business. Your next step should be to create a business plan. There are many pieces to a complete plan, such as financial information, budgets, etc. But if you spend a little time working on this effort, it will pay off for you in the future.
Feel free to reach out to an Extension educator, farm technology instructor or another service provider to assist you with putting your ideas on paper. You will want to assess your current situation, which includes who your customers are and will be, the equipment you may need and what you currently have, extra help you may need with the additional equipment, and your current financial situation. Next, I would encourage you to list your goals and the future ideas of your farm business — where would you like this to go? Then you can consider the different routes that you may need to take to achieve your goals and plans. There are lots of questions, but the process of putting together a business plan will help you to answer them.
Agrivision panel: Tom Kestell, dairy farmer, Sheboygan County, Wis.; 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 [email protected].