Perhaps the least fun job in family business transition planning is gathering the documentation to give planners a complete picture of the business—its structures, its assets and strengths, its liabilities and vulnerabilities.
It’s also one of the most critical pieces in a complex puzzle, says Kevin Spafford, succession planning expert and leader of the Farm Journal Legacy Project.
Like most families, the Moes family of Watertown, S.D., has struggled a bit to pull together all the information. Their goal was to compile everything by mid-October of last year. They got the last of it to Spafford and his team in early March.
"Our recommendations are based on current legal, financial and familial relationships," Spafford says. "So we need to know about entity structures; financial strength; contracts, leases and estate planning; and so on.
"Discovery is the second phase in the planning process. We learn everything we can about the owners, the families and the farm," Spafford says. "A client should err on the side of providing too much information."
Inevitably, there will be gaps to fill. Getting as much documentation together as possible at the outset gives planners the best chance of understanding each circumstance.
The Moeses’ case is complicated by the fact that they manage three separate business entities: MoDak Dairy, a 1,400-cow operation, milks three times a day and raises all replacements; MoDak Feeds manages 3,000 acres of cropland for the dairy operation; and MoDak Trucking provides services for the dairy.
Brothers Jim and Greg Moes have nine siblings, all of whom are heirs to part of the family’s land base. None are active in the business.
Their mother, Eileen, owns several quarters of the land they operate. Another huge chunk of land is in a family trust, with other siblings named as heirs to specific quarters.
The problem is that the acres in the land trust have different values because of varying soil type and because some of the acreage is in crops, while others are in pasture.
Sorting all that out—and then making recommendations on how to proceed to keep the land in the business—may require the wisdom of Solomon. That’s why assembling all the mortgages, long-term leases, operating agreements, current estate plans and irrevocable trusts are so crucial.
Spafford’s team also needs to get into the nitty-gritty of the family’s financial status to understand how leveraged the farm is, if it can take on more debt, whether Jim and Greg are comfortable doing so and what options are available.
With all those documents now in hand, the analysis can begin.