Family Farms: Tips for Working Together Vermont Grazing Conference

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Originally presented at the Vermont Grazing Conference on January 17, 2009.

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Family Farms: Tips for Working Together Vermont Grazing Conference

  1. 1. Family Farms: Tips for working together The Vermont Grazing Conference Annual conference Saturday, January 17, 2009
  2. 2. Goals for today  Overview of family business…working with family  Farm family businesses  Succession = working together Family Farms: Tips for Working Together
  3. 3. Quiz What is a family business?
  4. 4. Definition of a family business?  Business employs at least one family member as owner or partner;  The family controls ownership and / or decision-making power;  Future plans consider succession of the business to the next generation. Succession Checklist
  5. 5. What is a farm?  U.S. Census - any establishment which produced and sold $1,000 or more of agricultural products during the year.  Just over 2.1 million farms in the United States.  Average farm family exceeds $47,000 per year needed for basic living.  Less than 1 in 4 of the farms produce gross revenues in excess of $50,000. Family Farms: Tips for Working Together
  6. 6. What is a family farm?  1997 Census of Agriculture  90% are owned and operated by individuals or families.  6% are partnerships  “Corporate” farms account for 3% of farm  90% of those are family owned.  However, the term “family farm” does not necessarily equate with “small farm” Family Farms: Tips for Working Together
  7. 7. Farm type distribution Type of farm Number of farms Percent of farms Non-Family Farms 42,300 2.0 Farming Sales > $500,000 61,300 3.0 Farming Sales $250,000 - $499,999 91,900 4.5 Limited Resource 150,300 7.3 Farming Sales $100,000 - $249,999 171,500 8.3 Retirement 290,900 14.1 Farming Sales < $100,000 422,200 20.4 Residential/Lifestyle 834,300 40.4 TOTAL 2,064,700 100.0 Family Farms: Tips for Working Together
  8. 8. The Three Circle Model Business Family Ownership Succession Checklist
  9. 9. Pop Quiz  Is a family farm (choose one)  A business  A lifestyle  A legacy  All of the above? Succession Checklist
  10. 10. The “Blurry circle” model Business Family Ownership Family Farms: Tips for Working Together
  11. 11. 2007 Family Business survey  Nearly 60 percent of majority shareowners in family businesses are 55 or older  Nearly 30 percent are 65 or older  Less than 30 percent have succession plans  Fewer than 40 percent have a successor in line and are preparing for the transition. Source: Family to Family: The Laird Norton Tyee Family Business Survey 2007 (www.familybusinesssurvey.com)  Succession Checklist
  12. 12. Farming succession  30% of U.S. farm families have not discussed the issue with family members  40% of the farmers in this country are 55 years old or older (Bureau of Labor Statistics). Family Farms: Tips for Working Together
  13. 13. 2007 Family Business survey  Nearly 95 percent of respondents indicate that they manage their family-owned enterprise like they would any other business, but the numbers say otherwise.  Only 56 percent have a written strategic plan and less than 30 percent have a written succession plan. Source: Family to Family: The Laird Norton Tyee Family Business Survey 2007 Succession Checklist
  14. 14. Iowa State survey of farmers  50% had no estate plan  71% had no named successor  20% HAD spoken to a banker  30% HAD spoken to an accountant  28% HAD spoken to an attorney Family Farms: Tips for Working Together
  15. 15. Family Business Facts  More than 30% of all family owned businesses survive into the second generation  12% will still be viable into the third generation  Only 3% of all family businesses survive into the fourth generation level and beyond Succession Checklist
  16. 16. Most important farm transfer issues  Clear goals and communication  Transfer strategies  Assessing financial strength  Understanding tax issues  Wills, trusts & estate planning issues  Life insurance, power of attorney & health care issues Family Farms: Tips for Working Together
  17. 17. Why do family businesses fail?  Inadequate estate planning;  Failure to properly prepare and provide; for the transition to the next generation;  Lack of funds to pay estate taxes: In 47.7% of family business failures, the transition and ultimate collapse of the firm was precipitated by the founder’s death. Succession Checklist
  18. 18. Why Prepare?  Succession faces all businesses and owners  If you do not plan, someone will do it for you  Provides for (a semblance of) continuity despite unforeseen circumstances. Succession Checklist
  19. 19. If you learn only two things today… 1. START NOW!  Succession planning is important at every stage of the business. 2. INVOLVE OTHERS…  Family;  Stakeholders;  Professionals. Succession Checklist
  20. 20. SMART Goals  S  Specific  M  Measurable  A  Attainable  R  Realistic  T  Timely Succession Checklist
  21. 21. 1. Goals - Owner  Time line;  When would you like to leave?  Financial;  How would you like to leave the business?  Lifestyle;  What will you do?  Manage the plan. Succession Checklist
  22. 22. 2. Goals – Key Stakeholders  Family members:  In business  Out of business  Partners/investors;  Employees;  Others.  Customers  Community Succession Checklist
  23. 23. 3. Clearly define stage of business as it relates to owners exit goals  Early stage – Survival:  Owner - entrepreneur  Not yet profitable but perhaps saleable  Growth:  Growing rapidly  Succession plan as contingency, added value  Mature:  Stable cash flow  Positioned in market Succession Checklist
  24. 24. 4. Business Valuation  The valuation is only as good as the information and cooperation that you provide to the analyst;  Choose an accredited valuation analyst; don't have Uncle Bob do this; it's too important;  Cost - $5,000 - $10,000 depending on the level of analysis and nature of report (oral, limited, comprehensive);  Time to complete - from the time you make the first call to an analyst to the time you get a completed report - 4 - 8 weeks; most of this time is spent collecting information. Succession Checklist
  25. 25. 5. Communicate  Professional advisors:  Financial  Legal  Personal  Family meetings  Frequent or at least regularly scheduled  Off farm or non-working  Non-family advice & peers  BOA  BOD  Education  Non-technical  Strategic Succession Checklist
  26. 26. 6. Explore succession options  Keep in family:  Buy-sell agreements  Gifting  Trusts  Outright sale:  Third party  Liquidation  Internal sale:  Management buy out  Employees (ESOP or CO-OP)  Partners Succession Checklist
  27. 27. 7. Have a contingency plan!  Death  Disability  Loss of business value  Failure to secure sound management or transition team. Succession Checklist
  28. 28. 8. Identify successor (s) & future management  Key positions  Tools needed to succeed  Develop skills  Provide time and space. Succession Checklist
  29. 29. 9. Develop & manage actual plan  Written & documented  Stick to goals and time line  Share with others  Family  Employees  Stakeholders. Succession Checklist
  30. 30. 10. EXIT!!! LEAVE!!! RUN AWAY!!!  Truly let go!  Let others succeed;  Do you have a plan for all your free time?  Or perhaps…. Succession Checklist
  31. 31. …start a new business! Succession Checklist
  32. 32. Advice from a family farmer  The time to start the process in not in your 70’s or 80’s  Open communication – conflict is OK!  Don’t rule out the youngsters  Buy and pay –off a long term care policy  Emulate the career tracks of Amish farmers  Farm form teens to mid-40’s.  Take on less taxing career of teaching or crafting Family Farms: Tips for Working Together
  33. 33. FINAL EXAM
  34. 34. If you have learned only two things today: 1. START NOW!  Succession planning is important at every stage. 2. INVOLVE OTHERS…  Family;  Stakeholders;  Professionals. Succession Checklist
  35. 35. Lessons learned  Farm business transfer, estate planning & elder law are very complicated  Laws change frequently so up-to-date information is critical  Working with professionals is critical  Pick those who understand ag-business  This all takes time, effort and emotion Family Farms: Tips for Working Together
  36. 36. What is the Vermont Family Business Initiative?  Founded in 1998 in the UVM Business School.  Provides a series of family business forums throughout the state.  Currently 30+ member business in Vermont, from Bennington to Newport.  Family owned and closely held.  Farms welcome Succession Checklist
  37. 37. Contributing partners  Gallagher, Flynn & Company  Greg Bourgea, CPA  Gravel and Shea  Margi Montgomery, Esq.  Northfield Savings Bank  Tim Ross, CFO  Fleischer Jacobs Group  Tim Cope Succession Checklist
  38. 38. Additional resources:  http://uvm.edu/familybusiness  Click on RESOURCES  National Farm Transition Network  http://www.farmtransition.org/  2007 Family Business Survey  www.familybusinesssurvey.com  Family Business Wiki  http://www.familybusinesswiki.org Succession Checklist
  39. 39. Questions?  Deb Heleba – UVM Extension  802-656-4046  Debra.heleba@uvm.edu  Daniel Van Der Vliet - Director  802-656-5897  daniel.vdv@uvm.edu Succession Checklist

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