Post on 24-Aug-2020
transcript
Returning to the Farm
David GoellerTransition Specialist
402 472 0661dgoeller@unl.edu
Dept. of Agricultural EconomicsUniversity of Nebraska-Lincoln
Age of Nebraska Farm Operators
Age 1982 1987 1992 1997 1997*Adj.
2002* Adj.
Under 34 13,436 22%
35 – 64
Over 65
Total
Source: Census of Agriculture, NASS
Age of Nebraska Farm Operators
Age 1982 1987 1992 1997 1997*Adj.
2002* Adj.
Under 34 13,436 22%
35 – 64 38,030 63%
Over 65
Total
Source: Census of Agriculture, NASS
Age of Nebraska Farm Operators
Age 1982 1987 1992 1997 1997*Adj.
2002* Adj.
Under 34 13,436 22%
35 – 64 38,030 63%
Over 65 8,777 15%
Total
Source: Census of Agriculture, NASS
Age of Nebraska Farm Operators
Age 1982 1987 1992 1997 1997*Adj.
2002* Adj.
Under 34 13,436 22%
35 – 64 38,030 63%
Over 65 8,777 15%
Total 60,243 100%
Source: Census of Agriculture, NASS
Age of Nebraska Farm Operators
Age 1982 1987 1992 1997 1997*Adj.
2002* Adj.
Under 34 13,436 22%
12,609 21%
35 – 64 38,030 63%
37,056 61%
Over 65 8,777 15%
10,839 18%
Total 60,243 100%
60,502 100%
Source: Census of Agriculture, NASS
Age of Nebraska Farm Operators
Age 1982 1987 1992 1997 1997*Adj.
2002* Adj.
Under 34 13,436 22%
12,609 21%
8,877 17%
35 – 64 38,030 63%
37,056 61%
32,735 62%
Over 65 8,777 15%
10,839 18%
11,31121%
Total 60,243 100%
60,502 100%
52,923 100%
Source: Census of Agriculture, NASS
Age of Nebraska Farm Operators
Age 1982 1987 1992 1997 1997*Adj.
2002* Adj.
Under 34 13,436 22%
12,609 21%
8,877 17%
5,531 11%
35 – 64 38,030 63%
37,056 61%
32,735 62%
33,532 65%
Over 65 8,777 15%
10,839 18%
11,31121%
12,391 24%
Total 60,243 100%
60,502 100%
52,923 100%
51,454 100%
Source: Census of Agriculture, NASS
Age of Nebraska Farm Operators
Age 1982 1987 1992 1997 1997*Adj.
2002* Adj.
Under 34 13,436 22%
12,609 21%
8,877 17%
5,531 11%
35 – 64 38,030 63%
37,056 61%
32,735 62%
33,532 65%
Over 65 8,777 15%
10,839 18%
11,31121%
12,391 24%
Total 60,243 100%
60,502 100%
52,923 100%
51,454 100%
54,539 100%
Source: Census of Agriculture, NASS
Age of Nebraska Farm Operators
Age 1982 1987 1992 1997 1997*Adj.
2002* Adj.
Under 34 13,436 22%
12,609 21%
8,877 17%
5,531 11%
3,7828%
35 – 64 38,030 63%
37,056 61%
32,735 62%
33,532 65%
33,390 68%
Over 65 8,777 15%
10,839 18%
11,31121%
12,391 24%
12,20325%
Total 60,243 100%
60,502 100%
52,923 100%
51,454 100%
54,539 100%
49,375100%
Source: Census of Agriculture, NASS
Nebraska Farm Income & Expense
$0
$100
$200
$300
$400
$500
$600
$700
$800
1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Thousands
Year
Gross Cash IncomeCash ExpensesNet Cash Income
Source: Nebraska Farm Business, Inc.
Nebraska Cash Income & Family Living Expense
$0
$20
$40
$60
$80
$100
$120
$140
198419861988199019921994199619982000200220042006
Thousands
Year
Net Cash IncomeFamily Living
Source: Nebraska Farm Business, Inc.
Nebraska Cash Profit Margin
0%5%
10%15%20%25%30%35%40%45%50%
1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006YearSource: Nebraska Farm Business, Inc.
Business Life-CycleIntroduction Growth Maturity Decline
Penetrate & Grow
Protect & Defend
New Opportunities Divest
Time
Source: Wadsworth
Business Life-Cycle
Maturity
Time
Source: Wadsworth
Maturity
Time
1st Generation 2nd Generation
Business Life-Cycle
Maturity
TimeSource: Wadsworth
Introduction
Maturity
Estate Planning Research
2/3 of Iowa Farmers plan to never“Fully Retire”
Over 1/2 of all Nebraska farmers do not have a Will
Why don’t we Plan?
Too Complicated
Why don’t we Plan?
Too Complicated
Don’t like to Plan
Why don’t we Plan?
Too Complicated
Don’t like to Plan
Facing our own Mortality
KEY QUESTIONS
KEY QUESTIONSIs there a successor?
KEY QUESTIONSIs there a Successor?
Farm/Ranch Income may leave the area
KEY QUESTIONSIs there a Successor?
Farm/Ranch Income may leave the area
Unintended Consequences:CommunityBusinessesChurchesSchools
KEY QUESTIONSIs there a successor?
Will you pass on your farm assets as a business or a pie?
What to do with the Farm/Ranch?
First question to consider:
Do you want to transfer the ranch/farm as a “viable business” or
simply as a “group of assets”?
A. Transfer PlanB. Estate Plan
FARMBusiness Assets
SuccessionPlan
FinancialViability Goals
RetirementPlan
EstatePlan
EstatePlan
Successful Farm TransitionsGoals
Older GenerationRetirement lifestyle
(money needed)ResidenceNonfarm heirs
Fair vs EqualContributionCompensation
Younger GenerationLifestyle (money needed)Growth of businessAttitude toward debtOwnership vs. rentingFamily time vs. work
Successful Farm TransitionsCommunication
Expectations, Expectations, ExpectationsRegular business meeting throughout
transition periodTalk about it, then write it downShare with non-farm family membersSurprises cause problems
Hired Man or Partner
1990 Networth = $300,000/3 kids = $100,000 2008 Networth= $3,300,000/3kids=$1,100,000Contribution/Compensation 50%/50% Partner and Founder $3,000,000 Partner & Founder $1,500,000 eaPartner’s share $ 100,000 from 1990 $1,500,000 from growth and appreciation $ 500,000 from Founder growth and appreciation $2,100,000 total for Partner $600,000 each for siblings
Successful Farm Transitions:Financial Viability
Farm Efficiency Expenses Purchases (shop around) Bang for the buck Quantity/early pay discounts
Income Production, production,
production Marketing Quality
Successful Farm Transitions:Financial Viability
Farm EfficiencyAssets earning their “keep”Investments paying their interestNew paint disease
Successful Farm Transitions:Financial Viability
Farm Debt StructureLong term vs. short term loansInterest rate Principal payments
Successful Farm Transitions:Financial Viability
Family Living CostRetiring familyFarming familyOff-farm employment
Farm/Ranch Size
Successful Farm TransitionsBusiness Succession Plan
Can you answer yes to these questions?
Are the Parents ready for a partner?How committed is the child to farming?Is the business large enough?Do you have a Common Vision of your
future together?Can you live and work together?Are the non-farming children supportive?
FARMBusiness Assets
SuccessionPlan
FinancialViability Goals
RetirementPlan
EstatePlan
EstatePlan
KEY QUESTIONSIs there a successor?
Will you pass on your farm assets as a business or a pie?
How long will the transfer period be?
Business Succession PlanTRANSFER PERIOD
ownersuccessor
time
Short Transfer Period
Business Succession PlanTRANSFER PERIOD
Long Transfer Period
ownersuccessor
time
KEY QUESTIONSIs there a successor?
Will you pass on your farm assets as a business or a pie?
How long will the transfer period be?
Super Farm vs Spin-off?
Business Succession PlanTWO BASIC CHOICES
Multi-Person Arrangement
Spin-Off Arrangement
MULTI-PERSON APPROACHP C
Business
P & C
Business
P
Business
C
SPIN-OFF APPROACH
Business Business
C
C
C
P
P
Business
P
Business
Business Succession PlanThe Transfer Stages
Testing
Commitment
Established
Withdrawal
Business Succession PlanThe Transfer Process
Ownership
Management
Divide Income
Labor
Business Succession PlanTesting Commitment Established Withdrawal
Labor
Timeline
Management
Timeline
Income
Timeline
Ownership
Timeline
Successful Farm TransitionsIncome/Labor Transition Plan
How will income & labor be split?EnterpriseSharesWageCombination
Timeline for split income and laborJob description
Successful Farm TransitionsManagement Transition Plan
How will management be split?EnterpriseWhole farmFarm activity (marketing)
Timeline for management transitionLearning or testing phaseCompletion date
Parent/child relationship vs. business partner
Successful Farm TransitionsOwnership Transition Plan
Gift Sales Inheritance/willTimeline
Successful Farm TransitionsOwnership Transition Plan
Tax ConsequencesBusiness structureSole proprietorPartnershipCorporationLimited Liability CompanyTrust
Successful Farm TransitionsOwnership Transition Plan
Order of Asset Transfer
Operating Inventory 1
Breeding Livestock 2
Machinery 3
Buildings & Facilities 4
Land 5
Successful Farm TransitionsOwnership Transition Plan
InsuranceLife insuranceDisability insuranceNursing home insurance
Successful Farm TransitionsRetirement Plan
Timeline of farm involvementWhere will money come from?Where will you live?How will you account for non-farm heirs?What will you do?
Successful Farm TransitionsBusiness Succession Plan
Can you answer yes to these questions?
Are the Parents ready for a partner?How committed is the child to farming?Is the business large enough?Do you have a Common Vision of your
future together?Can you live and work together?Are the non-farming children supportive?
Someday Son, This Will All Be Yours
KEYS TO SUCCESS
Strengthen Family RelationshipsImprove Communication SkillsKnow all ExpectationsRecognize Individual DifferencesManagement Participation = LearningDecision MakingEncourage Diversionary Activities
KEYS TO SUCCESS(continued)
Separate Housing is RequiredFit the Agreement to the SituationDevelop a Written AgreementUpdate the Business ArrangementMake it Work Attitude
Time Management Matrix
I. ActivitiesCrisis ManagementDeadline Projects
II. ActivitiesPlanningRelationship Building
III. ActivitiesSome Calls, Mail, Popular Activities
IV. ActivitiesTime WastersBusy Work
Urgent Not Urgent
Not
Im
port
ant
Impo
rtan
t
Resources
Joe M. Hawbaker, Hawbaker Law OfficePhone: 402-558-3540Email: mjbaker@radiks.net
David Goeller, UNL Farm Transition SpecialistPhone: 402-472-0661Email: dgoeller@unl.edu
Nebraska Farm HotlinePhone 800-464-0258
Resources
Don Hofstrand Iowa State University Co-Director, Ag Marketing Resource Center Phone: 641 423 0844
John Baker, Attorney at Law Iowa State University Director of the Iowa Beginning Farmer Center 800 447 1985
Roger A. McEowen, Attorney at Law Iowa State University Associate Professor of Agricultural Law Phone: 515 294 4076