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Retiring parents can still help son financially

penned Holsteins
FAMILY BUSINESS: Through communication and understanding of each partner’s goals, family members can set a course for the future of their dairy business while maintaining open communication and strong relationships.
Agrivision: This farming family needs help drawing a road map to meet everyone’s financial goals.

We own 400 acres and milk 250 cows. We owe about $100,000 on the mortgage on our farm. Our 40-year-old son and his wife are in partnership with me and my wife. He wants to expand our herd to 500 cows. They own 50% of the cows and heifers. We are in a good equity position, but we don’t want to use our assets toward the expansion because we would like to retire in two to five years. We’re concerned with the glut of milk already out there — will there be a market for our milk? What are your thoughts?

Hodorff: Milk markets are of some concern. Before you would expand, a secure milk market needs to be addressed. After that, the next decision is your assets. One idea would be to redo your operating agreement. You could freeze your share value and receive interest payments on the shares you freeze. When you do this, then the growth of the company would be shown on your son’s ledger. As your son grows the company, the growth would appear on his balance sheet. You would also receive some income to fund your retirement. I’m not sure you should hold all your assets. You could do a percentage to assure the success of the family farm.

Miller: This is a larger question than simply doubling your herd size. This is more about goals for each of the partners in the business. Your goal is to move toward retirement, and your son and his wife would like to grow the business. Take a step back and engage a dairy business consultant to walk you through a goal-setting exercise to determine personal, business and family goals.

Then work with a consultant on financial goals, including a road map to buy out you and your wife as you move toward retirement and expansion plans for your son and his wife. Through communication and understanding of each partner’s goals and objectives, and then the financial possibilities of each, you can set a course for the future of your business while maintaining open communication and strong family relationships.

The question of where the milk goes is an important one, but way down the list given the family and business dynamics to be addressed. Good luck with your goal-setting exercise to determine the future of the business.

Wantoch: It sounds like you and your wife have different goals than your son and his wife. This is very common among different generations. I would encourage each partner to write down his or her goals for the farm business over the next two, five and 10 years. Also, you should list the personal goals that each person would like to accomplish over the same time frames.

You may want to work with a facilitator to lead your family in this task. The facilitator could collect and review these goals to see if some are similar. That person would then lead you in a discussion about how you could blend those differing and similar goals to achieve a business plan that would fulfill the needs of all involved over the short term as well as the long term.

If you are not interested in expanding your dairy herd, I would then encourage you to focus on your retirement and estate plans, if you haven’t done this already.

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 agriculture 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].

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