Preparing Your Next Generation: The Story of Two Families
By John Frey, Executive Director with the Center for Dairy Excellence
Few things stir emotions in farmers more than talking about family and the family farm; and few things are as challenging as building a transition plan which achieves everyone’s goals. Earlier this month, those dairy producers attending the Pennsylvania Dairy Summit heard firsthand accounts of how two successful dairy families have worked through the process of business transition and succession. Both of these families shared openly about what they learned from how their parents handled the process. They also shared the joy and sorrow, good and bad, while vowing to help their children move into management, asset accumulation and eventual business ownership.
During this 90 minute session, attendees were privileged to hear open accounts of what has worked for these families and what hasn’t. One family spoke of working in a family environment of empowerment, education, openness, and trust. This family encouraged opportunity for early equity growth by suggesting the sons diversify the dairy business by investing in poultry houses on the farm at a relatively young age. After a number of years of growing equity in these facilities, the sons were presented with an opportunity to form an LLC partnership, grow the dairy operation, assume more management responsibility, and eventually as their own families formed, assume full ownership and transition the older generation out of the business.
This story is one which reflects an understanding of “family business”, the need to position the business in such a way as to accommodate and incentivize multiple generations. This allowed the senior generation to live with a slower pace with adequate income from the sale of the business, the middle generation to grow the business with a balance of equity and debt, and all the while, having a business positioned to excite the third generation.
The second family talked about some very similar strategies, with the added dimension of a senior generation unable or unwilling to let go. An early partnership was formed, but was absent of any ownership and thus missing the opportunity to build an equity base from which to grow the business. The business wasn’t growing, and trust and openness didn’t exist. Difference of values, an attitude of control, lack of communication, use of threats, and unwillingness to leverage outside expertise characterized the prevailing attitude. As the third generation entered adulthood, including marriage and children, the second generation vowed to do things differently.
The third generation was empowered and trusted, and a neighboring property was purchased and immediately used as equity and ownership for the third generation. This generation increased the size of the herd, hired employees, added diversity within the business model and sought out the expertise of knowledgeable consultants. It is important to note both families developed a plan which included current or future equity opportunities for children not involved in the dairy and agriculture enterprise.
The transition process involves many important factors, but none surpass the importance of open and frequent communication done in a considerate and thoughtful way. Rounding out the session on this topic at Summit was a presentation by Mike Peachey from Acuity Advisors and CPA’s who has worked with many dairy farm families to help coordinate and build the transition planning process.
Mike listed what he has identified as the “Top Ten Drivers for a Successful Transition.” He emphasized the need to start early and to be intentional and persistent in the process. Said another way, Mike stated, there has to be a commitment to do it. Understanding the dairy operation is a business is essential for a transition to be feasible and successful. It was emphasized some families recognize this too late; at which time a transition simply cannot accommodate a retiring lifestyle for the senior generation, along with a business which is thriving and dynamic for the future generations.
Having a culture of open communication with all family members was identified as being essential for a business to grow and to transition. Communicating goals openly, and recognizing and respecting that each family member’s goals may be different, is essential for families who want to encourage children to feel open and safe in expressing themselves. Finally, Mike illustrated how all of what he had identified as being “Top Drivers” up to that point in his list were largely relational in nature and grounded in respect and communication for and from all parties involved. Finally, and as important, having a profitable business model with good financial information while utilizing outside expertise and consultation made the list for Top 10.
Each of these presenters emphasized the enormous opportunity the dairy industry provides to build a dynamic dairy and agriculture business. At the Center for Dairy Excellence, we recognize the importance of having the right resources in place to begin and complete the process. Contact us for more information on these resources. If your family is interested in learning more about how to begin the process of Transition, the center is hosting a workshop for dairy families on March 17th in Lancaster. Contact us for more information at 717-346-0849