The Need to Plan

October 11, 2012 11:26 AM
The Need to Plan

Rapid expansion cements the need for transition planning

When Greg and Jim Moes began their Legacy Project journey with Farm Journal in September 2010, they were milking 1,400 cows, running a double-20 parlor and struggling to recover from 2009’s milk price debacle.

Now, two years later, they’ve grown the herd to 1,900 cows and will add another 300 from their pool of home-grown replacements by year’s end. They have expanded the parlor to a double-30 to milk them all. And they will soon put the finishing touches on a 320'×930' cross-vent barn to house the milking herd and dry cows.

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The Moeses’ monthly milk checks can approach seven figures, and lenders are now seeking their business. They’ve realized they needed to change to a dairy-specializing accountant, and have done so. That move alone has opened their eyes to new opportunities.

For example, the brothers had been paying themselves minimal rent on the land they owned simply to cash-flow the dairy. Their new accountant is insisting they budget in market-rate rents so they will have a better understanding of the dairy’s true profit and loss.

Kevin Spafford, Farm Journal’s succession planning expert, weighs in: "This is a move that ensures the business is not built on false economies. Under- or overpricing assets, land, labor and equipment may exaggerate income and not accurately account for real costs."

This is an especially important point when planning for financial security. Plus, the brothers need to put that rent into separate accounts for their own retirement.

"We should have been asking these questions years ago, but back then we were used to pinching pennies just to cash-flow," Greg says.

The challenge is twofold, Greg says. First, he and his brother have to become the financial managers of the operation and give up day-to-day control of the cows and crops. Today, every decision the brothers make seems to involve $20,000 or more. But giving up control is not easy to do after 30 years of hands-on management.

Second, and perhaps the bigger challenge, is to bring the next generation of managers up to speed. "We grew with the operation—from 300 cows up to our present size," Greg says. "But how do you bring younger managers in their 30s and 40s in to manage a 2,200-cow operation that might be turning over $800,000 to $1 million per month when their only experience is limited to cows and some labor management?"

"Both of these issues speak to a need for better leadership development," Spafford says. "Next-generation leaders must be prepared to make good decisions and take the measured risks that are necessary in order to manage a large agricultural concern."

Despite their reluctance, the brothers know it must be done. In January, Greg’s appendix burst without him realizing it. He went untreated for several days, and then spent eight days in the hospital.

"Another few days without treatment, the doctor told me, and I wouldn’t be here," he says. "That kind of thing really shocks you into doing the things you have to do to make your transition plan work.

"But it doesn’t happen like we think it should. Two years ago, we didn’t ask enough questions, partly because we didn’t know which questions to ask," he says.

Working with consultants helps, but talking with peers of similar size can offer the best insight, he says.

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