A Tale of Two Transitions
February 2017 – Pennsylvania’s dairy industry has a rich heritage of family-owned businesses. If you ask many farm families to describe their business, one of the first statements they’ll make is “Our farm has been in the family for X number of generations.” Family-owned businesses like our dairy farms also comprise a significant part of our domestic economy, with family businesses accounting for 64 percent of the U.S. gross domestic product, 62 percent of the country’s employment, and 78 percent of all new job creation.
Yet, the statistics around family-owned businesses and transition are alarming. According to the Family Business Consulting Group, 30 percent of family businesses make it to the second generation, 10 – 15 percent make it to the third and only 3 – 5 percent make it to the fourth generation. The consulting firm lists issues related around communications and trust as the number one reason why businesses fail to transition from one generation to the next.
It’s a tale of two transitions. In some families, plans are made early, with the next generation involved in the decision-making process early in life. In some cases, families will begin talking about what the future looks like and how the business is going to transition when that next generation is their early twenties. In other families, that next generation can be approaching 60 with the previous generation aging well past 80 before any thought of how the business will transition.
The tremendous divide between families who plan and openly communicate about their plans, and those who avoid the subject and delay the process can be the wall that builds barriers between family members and leads to complete breakdowns in family businesses. A novel I once read talked about how the father spent his life fighting to maintain control. In the end, all that was left of the business he spent his life fighting for was acres of farmland where the farmstead once was now owned by somebody else. The writer spoke from the perspective of the daughter who was reduced to tears each time she drove past the land.
Sadly, for too many people, this isn’t fiction. Farms are lost because of the failure of generations to trust each other, provide opportunities and openly communicate about transition. It causes more farm failures than low milk prices, severe drought or any other hardship that farms face.
Involve the Next Generation Early
In the summit this week, a dairy producer in his mid-40s spoke about how he is involving his teenaged children in the operation. “Every time my truck door opens, theirs better open too.” He is involving them in his business and letting them know the interworkings of it – good and bad – now to begin the foundation for a potential transition that still remains years down the road.
Another producer who I know shares how his interest in their dairy operation began when he came home from college and noticed his father providing a chance for his older brother to make changes and improvements on their 90-cow dairy. Today, that dairy is one of the largest in the state, with both brothers taking their operation to an entirely new level.
Finally, a third producer often tells how he is an early adopter of technology in part to keep his children interested in the operation. He says how the technology helped to draw them back when they realized that working on the dairy didn’t have to be just milking cows and planting crops. Today, that family has just begun working through the process of transition.
Whatever your story is of how you attract that next generation, make sure your transition plan is in place to ensure they are both able and willing to stay.
Resources to Help
Are you thinking about your farm’s next transition? If you’re not, you may want to consider coming to the upcoming Dairy Transitions Workshop that is being hosted by the Penn State Extension Dairy Team and the center on February 23 at Celebration Hall in State College. At this workshop, you’ll hear some of the basics that go into planning any transition – farm financials, asset accounting, and attorney discussions – but you’ll also learn how to begin talking and communicating about what each partner wants out of the transition.
The center also has resources to help individual dairy farm families get started in transitioning their operations. Dr. Charlie Gardner, who serves as a consultant to the center, is available to sit down with farm families and begin the discussions around what transition looks like. The center also offers funding for families to utilize a transition team, which can cover the cost of paid team members, like attorneys, accountants and facilitators, to guide the transition process. Up to $3,000 in funding is available through this program.
With the vast majority of the principle owners on Pennsylvania’s 7,000 dairy farms over the age of 55, the center recognizes the need for families to be talking about transition now to ensure our dairy industry and its individual dairy farm families continue to move forward and thrive. We want to make sure your children and grandchildren have the ability to continue to say, “This farm has been in our family for X generations.” Let us help. Call the Center at 717-346-0849.