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Business Continuation: Is It Worth It?

Published on: 14:16PM Apr 18, 2018

 

 

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In my previous blog post, I wrote about retirement leading to consolidation in agriculture. As more farmers are retiring, the next generation has decisions to make. The biggest question: Do I take over the farm? In considering that question, let’s assume it is a farming business that is established and profitable. It isn’t easy to jump into a business stuck in tradition, but I want to discuss why it’s worth the effort.

 

Last week, I painted my parent’s garage door. Being a wooden door that’s over 30 years old, I had to do substantial prep work including washing, filling, and sanding. I was pleased with the end result, but it would have been easier to start from scratch. A new door wouldn’t take much prep work and would be fresher. But in the end, the repaired door is better than what you can buy today.

 

An established business is similar. It has flaws that need work. Many times, the quality is there, but the transition is challenging. Here are some of the reasons it’s worthwhile to continue a farming business versus starting from scratch.

 

Land base. It takes land to farm. Finding land is an obstacle that prevents many from starting fresh because land owners have loyalty to the operator that farms the ground. Also, land rarely sells. New operators will struggle to buy or rent new land due to substantial investment or lack of reputation. A new manager taking over isn't guaranteed this land base, but the odds of keeping it are high.

 

Capital. Beyond land, it’s difficult to borrow money to farm. Beginning farm loans and crop insurance help, but may not be at the volume needed to be competitive. A business worth continuing will have collateral on and off paper. At the very least, the business should have records of profitability to secure future financing.

 

Education. A farmer takes the role of an investor, agronomist, mechanic, techie, marketer, and accountant. A formal education helps, but it takes years of on-farm experience to develop necessary skills to run a successful farming business. All farms are different, so this education will be specific with fewer unknowns. For example, knowing which farm dries the quickest for fieldwork may be beneficial—not all of these lessons are rocket science.

 

Employees. Experienced farm labor is essential. They know the equipment and land and can often cover some of the roles listed above. Employees are much like land owners in that they are comfortable where they are. They have loyalty to the business and understand the demands of agriculture. 

 

The examples above are important, but I want to point out a major red flag before taking over a business: Unclear authority. The largest obstacle when taking over an established business is having responsibility without authority. Everyone has a different way of doing things and businesses have a culture and tradition. You can’t repair the “cracks” if the previous management hasn’t fully given you the authority to do so. I’m not talking about going on a power trip and changing for the sake of change. Rather, encourage mentorship from the previous management while maintaining the ability to pick and choose recommendations. Without a clear leader, confusion and inconsistency may prevent success.

 

Continuing a business has more positives than negatives if the previous management is ready to give up authority. I would closely examine all my examples before making the final decision. Sometimes the repairs are small, but the quality is there. This is an exciting period of opportunity for the next generation and I wish you the best of luck.

 

Email Katie at khancock@brockreport.com

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