Gifting the farm to your children may not be the best option
"Are you prepared to sell your business?" That was the provocative question that Tom Deans, author of Every Family’s Business, a best-selling family business succession book, asked an audience of roughly 1,000 farmers attending the Top Producer Seminar yesterday.
The speaker gave the audience 15 long seconds to ponder the answer. Facial expressions indicated that many farmers in attendance were not prepared. They likely had no intention of selling their business; they intend to gift it to their children.
"Every business should be positioned for sale the moment it’s incorporated," advised Deans. Deans' words may have registered as sound advice to some business owners, but not to farmers intent on passing down the family farm through the generations.
"A successful family farm is one that’s sold to someone else," not one that lives on forever, said Deans, allowing that he didn’t expect everyone to agree with him, especially sons and daughters in the audience who hope to inherit the family farm. If you must leave the business to your children, Deans said, sell it to them.
Deans, who was asked to buy stock his father’s business, then decide whether to buy all of it or sell it, argued that children who inherit a family business need to have skin in the game. That’s the only way to ensure that they will have the ambition to innovate and grow the business. And without that ambition, he said, the business will fail.
"The key question is whether your kids love the farm enough that they will risk their own capital," said Deans, advising parents to have those conversations with their kids early. Also, he said for parents to go into the meeting with an open mind. It’s a mistake, Deans said, to think that your kids want to become farmers just because you did.
If your children don’t want to buy the farm, and neither do key non-family employees, the only remaining option is to sell it to another farmer or private equity. Then, the challenge for any seller is to interest as many bidders as possible. The more offers you can get, Deans said, the higher the price you will receive.
The lack of clear family-business succession planning, Deans argued, is destroying families. It creates poisonous bickering among siblings that often results in lawsuits. It leads wives who inherit businesses to wish their husbands would "come back from the dead," Deans said. "Wealth gets destroyed when business owners don’t plan for death."
The situation gets even more complicated when elderly farm owners don’t give up control. "We’re not dying the way we used to," Deans said. "Dad may still have a heart attack at 72, but he gets a stent and lives another 20 years. He draws a salary, owns the stock and has control."
That creates problems when a 65-year-old son running the company realizes that he needs to buy new equipment to remain competitive. But his father, who still controls the purse strings, nixes the plan because "that’s not the way we’ve always done it. Welcome to the modern family farm; it won’t work."
The bottom line is that American businesses "don’t last, and we don’t want to talk about it," Deans sadi. Better communication only goes so far in ensuring their survival. But Deans argued that companies don’t need to be built to last; they need to be built to make money. "You need to build a business that you can sell and leave money to their children so that they can pursue their dreams," Deans said.
Deans closed by noting that the current generation of American business owners, including many of the farmers in the audience, has created more wealth than any generation in history.
"The question is whether you have the wisdom and foresight to protect your wealth," Deans said. "Do you know how to protect it? Do you know how to pass it? I think you do."
See full coverage of the 2013 Top Producer Seminar.
Thank you to the 2013 Top Producer Seminar sponsors and co-sponsors:
Agrigold, Agrotain, Asgrow/Dekalb, Apache Sprayers, BASF, Bayer, Cargill, Challenger, Dow, ESN, Firestone, DuPont Pioneer, RCIS, SFP, Syngenta, Top Third Ag Marketing, Advance Trading, Integris, Michelin, Novozymes, Kennedy & Coe, Illinois Soybean Association, Water Street Solutions