Best business structures for young producers
As a young producer, you might feel your operation is lacking—not enough land, too little experience or maybe your role isn’t completely defined yet. But your strengths might be just what a seasoned operation needs.
"It’s really hard to be good at everything," says Chris Barron, director of operations and president of Carson & Barron Farms Inc. in Rowley, Iowa, and author of the AgWeb.com blog "Ask a Margins Expert." "If you work at those things you’re not as good at, you become mediocre in everything."
Paul Neiffer, a CPA with LarsonAllen LLP and author of the Top Producer blog "The Farm CPA," agrees. "Once you identify your strengths and weaknesses, ignore your weaknesses. Find someone else who has that strength."
You want to either find a partner who can help you fill in any capital, equipment or management gaps or be the person to fill in the gaps in another operation.
"Determine what key competencies you have to offer," Barron says. "Agriculture is a unique industry, where you have to be good at numerous things."
Similar to large companies, farming operations should rely on certain people to be in charge of certain responsibilities, Barron advises. "As soon as you can compartmentalize your operation and have experts in each department, you will leapfrog in front of the competition," he adds.
Start Slow. Barron likens the first few years of a farming partnership to dating. "You don’t go out on a date then get married the next day," he says. You must build up trust.
A common mistake is wanting to join the equipment fleet first. "For that to work, you have to know that the personalities involved mesh."
Spend a year sharing equipment or making marketing or agronomic decisions together, Barron suggests, in order to develop the necessary personal connections and work through any differences that might exist in operational style.
Bring in third parties to help facilitate and further develop working relationships. "Sometimes families get along better when you bring in nonfamily moderators. It will change the dynamics of the meetings," he adds.
Choose the Right Business Structure. Once you find the right people to enter into an official
business agreement with, you must determine the proper ownership structure. Neiffer says farmers will realize advantages in tax management, estate planning and other business goals by choosing the correct business structure.
Here are the common business structure options:
Sole proprietorship. Neiffer says a business is automatically considered a sole proprietorship if there is only one farmer. A sole proprietorship is basically a business with a single owner and requires few business formalities. But it doesn’t have many tax advantages and has limited options when transferring the business to the next generation.
- January 2012