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Finance First: Should we merge family operations?

kali9/iStock/GettyImagesPlus Farmers standing beside truck, potato field in background.
First, think about joint decision-making, business goals, and an exit strategy.

I farm separately from my dad, and my brother also has his own operation. We’d like to merge our three operations into one. Any suggestions?G.B., Indiana

Typically, when farmers consider merging operations, it’s with an assumption that all will go well: We’ll make more money, we’ll have more fun, and everything will be great.

It’s possible that will happen, but it’s important to consider that anytime we bring separate forces together into one entity, new dynamics arise.

In your case, three different people, with their own opinions and perspectives, will need to come to a consensus about the direction of the operation. Business decisions must be run through that shared vision.

First, it’s key to figure out: Why do we want to come together? What do we hope to gain by joining forces?

Efficiency? A transition over time from an estate standpoint? Buying power? Lay out exactly why you want to do this and the benefits the three of you hope to gain.

Also, consider what will happen if this arrangement is not working in five years. What was problematic and led to it not working? That might be continued differences of opinion or lack of independence.

Expectations also need to be worked out ahead. Consider how you’ll jointly make decisions: Should we rent this piece of ground? Should we trade that piece of equipment? Who will be responsible for what? How are we going to communicate and make decisions? How are we going to settle differences?

Finally, lay out a plan, with a good attorney, for how things will dissolve, if that becomes necessary.

For this to work, create a shared vision with all the parties involved. Establish an exit plan in case things don’t go as hoped. Talk to other people who have done this — successfully or unsuccessfully — so you can benefit from their experience.

Frye is president and CEO of Water Street Solutions. [email protected]


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