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Workshop offers farm growth strategies

Workshop offers farm growth strategies
Key tax and farm business tips help farmers gear up for potential acquisitions

Over the next two years if the downturn in the farm economy lingers, more farmers may be compelled to exit the business, leaving opportunities for others to expand operations.

That topic was the focus of a mergers and acquisitions workshop held here in Kansas City the past two days, sponsored by Texas A&M, KCoe Isom, CHS and Monsanto.

"If land values start to fall in the Midwest and people begin to see their equity erode, along with tighter lending rules, there will be some opportunities for other farmers to grow," says Danny Klinefelter, Texas A&M extension economist.

Related: Does your farm business have a 'plan B'?

"Opportunities will come your way if people know you are open to growth," says Gregg Halverson (left) with Ohio farmer Rob Rettig, Tommy Davis and Danny Klinefelter. "We say no a lot more than we say yes."

Klinefelter and experts from KCoe Isom, an accounting and consulting firm, focused on tax and business strategies for a group of about 75 expansion-minded operators gathered from 20 states.

Even as margins get squeezed, lenders and bank regulators may be compelled to tighten lending requirements. A merger or acquisition might be a good choice for farmers looking to leave the business as well as those who are looking to grow, says Klinefelter. Often times, a smaller operator may sell out to another farm to maintain equity, and the buyer can spread equipment costs over more acres.  

"This is not all bad for the operator who is looking to exit," says Klinefelter. "Before your equity is gone or your lender insists you sell out, consider some of these options. As seller you may sell equipment and lease it back, improving your working capital situation. You may become an employee instead of an owner but you can preserve equity and keep family members on the farm.

Related: Can you forecast your farm's financial situation?

"Mergers and acquisitions can give farmers greater economies of scale or additional managerial expertise," says Texas A

"You might offer a merger opportunity and become a minority owner and get cash or stock in a bigger operation. It's a way to ensure your financial strength and potentially add some more management expertise to the newly merged business."

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Growth options
No merger or acquisition path is the same, as nearly all speakers pointed out. During one farmer panel, Gregg Halverson shared his approach as farmer-CEO of Black Gold farms in Grand Forks, North Dakota. Black Gold grows potatoes for potato chips and table stock in 11 states across the U.S.

"There are five rules of the road that are important," says Halverson. "First, if you're interested in growth in another area, be active and seek it out. Dedicate some time and effort to doing it, because these things don't just fall on your desk. Once you get known as someone interested in growth, all of a sudden your phone will start to ring. And we've said no many more times than we've said yes.

"Second, make sure you are represented by the right team, including an attorney, banker, and especially make sure family is in agreement," he says. "Without them on board all of a sudden you may have a problem.

"Third, look at the reasons for the merger or acquisition - why do I want to do this? Articulate this to your team and banker, because unless you know the reasons, maybe you shouldn't do it. You should also ask the person on the other side of the desk, why are you selling? If you can help satisfy their needs you have a much higher chance to get the deal done.

Related: Innovative ways to cut 2016 crop costs

"Fourth, do your due diligence – the more you can find out about your acquisition, the better. You really have to spend time digging in. Many times it's not the big picture items that hold the thing up – it's something small, like who gets the popcorn machine or the sign on the wall.

"Finally, have some fun. Put your plan in place, do your due diligence and put your team together. If you're lucky and work hard, it will happen."

TAGS: USDA
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