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Advice Many Don't Want to Hear: Sell the Farm

January 31, 2013
By: Boyce Thompson, AgWeb.com Editorial Director google + 
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Author Tom Deans speaks at Top Producer Seminar.  

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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  

 

 

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COMMENTS (16 Comments)

H. Bell - Hillsboro, OH
Won't matter who we leave the farm to if the country is destroyed by our goverment, and that looks more and more like a real possibility.
1:48 PM Feb 16th
 
H. Bell - Hillsboro, OH
Won't matter who we leave the farm to if the country is destroyed by our goverment, and that looks more and more like a real possibility.
1:48 PM Feb 16th
 
jonas grumby - IL
OK How many people who have "sold the farm" in the last 25-30 years are glad today that they did sell the farm? I suspect not many.
11:37 AM Feb 8th
 
jonas grumby - IL
OK How many people who have "sold the farm" in the last 25-30 years are glad today that they did sell the farm? I suspect not many.
11:37 AM Feb 8th
 
RICHARD - KEENEY, KS
Good perspectives. After spending the last 50 years competing with farm operations with a high percentage of inheritance, I think many in our business fail to realize the tremendous advantage that represents. In marginal situations no amount of management , hard work or ambition outlast deep (inherited and carefully built upon) pockets. We do seem to encounter many marginal seasons here in Kansas.​
11:04 PM Feb 6th
 
RICHARD - KEENEY, KS
Good perspectives. After spending the last 50 years competing with farm operations with a high percentage of inheritance, I think many in our business fail to realize the tremendous advantage that represents. In marginal situations no amount of management , hard work or ambition outlast deep (inherited and carefully built upon) pockets. We do seem to encounter many marginal seasons here in Kansas.​
11:04 PM Feb 6th
 
dairydecider - WA
With LLC's and lease agreements there are many more ways to skin the cat than outright upfront purchase. Anyone that presents 'my way or the highway' approach needs to be scrutinized by the 'glittering generality' test. Regardless of succession/purchase plan, it has to be a bankable and liquid business plan. To me, that is primary, how it passes between generations is secondary. Sometimes the primary trumps the secondary.
10:28 PM Feb 5th
 
CB Indiana - IN
This guy has a lot of good points and all of his reasons for why you should sell your farm are very good reasons on why you would care who is controlling your farm after you are gone. However, making the next generation buy the farm is not the key. The key is choosing who you think will be best suited for care taking for the farm for years to come. Many times this is not the son or daughter of the farmer its another person (eg. Grand children, cousins, brothers ect.). All too often I have seen a farm go to the wrong person because that person is next in line and they want the farm because of its value and not for true reasons such as the love of the farm.
1:44 PM Feb 5th
 
swmnag - Marshall, MN
MN Farmer, I am going to speculate on your comment just a bit. What is wrong with putting family time ahead of business and going to the "ball games" if their kids are involved or being an active community memeber and supporting your local school? Working long hours doesn't mean productive work. In my situation, my Dad made a decision that Idon't think he ever regrets. He didn't miss a single ball game of me or my siblings. He felt it was important to take a couple of hours once or twice a week to be there for his kids. So like I said, I am speculating on your comment, but I don't know why else you would say something like that. There is more to life than hard work and money.
10:33 AM Feb 4th
 
swmnag - Marshall, MN
MN Farmer, I am going to speculate on your comment just a bit. What is wrong with putting family time ahead of business and going to the "ball games" if their kids are involved or being an active community memeber and supporting your local school? Working long hours doesn't mean productive work. In my situation, my Dad made a decision that Idon't think he ever regrets. He didn't miss a single ball game of me or my siblings. He felt it was important to take a couple of hours once or twice a week to be there for his kids. So like I said, I am speculating on your comment, but I don't know why else you would say something like that. There is more to life than hard work and money.
10:33 AM Feb 4th
 



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