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Passing the family farm to the next generation

January 10, 2006|by JEFF SEMLER

You have read many articles over the years in this spot about keeping farms in Washington County. We have discussed farm profitability, the importance of agriculture to the community and other topics. Today, we will be discussing transitioning the farm to the next generation.

This topic is not as simple as it sounds, but if we are going to have old farmers, we have got to get the young farmers on the farm. In most cases, this is a twofold process - transferring the business and transferring the property.

First and foremost, it is important to get everyone on the same page. So you need to meet around the table with all parties and put things down on paper. We as a species carry way too much information around in our heads. Being married now 23 years and a parent for 20, I often walk around thinking I relayed information to my wife or one of my children, while indeed it is still rattling around in my head.

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This is not earth-shattering if it is about picking up a loaf of bread, but it can be devastating if it has something to do with long-range planning. So let's get out on the table everyone's expectations. Do Mom and Dad want to fully retire or semi-retire? Is this in five years or 15 years? Does son or daughter want to take over fully in five or 15 years?

It also will be necessary to put together production, marketing and financial plans. These plans will vary in scale and depth depending on the type of farm business. For instance, a marketing plan will be very limited for dairy farmers, since they sell their milk through a marketing cooperative, but will be an absolute necessity for a vegetable grower.

Your production plan should include enterprises, quantities, acres, livestock numbers, yields and inputs. Production plans are for everything you produce. If you produce beef cattle and also harvest hay or corn, you need more than one production plan.

Your marketing plan, as previously stated, will vary greatly with your enterprise. However, if you plan to sell directly to the public, marketing will make or break you. If you are a grain producer, marketing is very important and you need a full toolbox to work with, such as forward contracts, LDPs and the like.

Financial plans are the last component. After all, no matter what, this farm has got to be a business. And while some decisions will not always be based solely on finances, you still need to be profitable. Again, three to five years of historical data, as well as one or two projections. Balance sheets, profit and loss statements, and cash flow all need to be shared. Nothing can be held back if we want the next generation to succeed - they must know the good, the bad and the ugly - in short, everything.

You need to separate them in order to accurately evaluate each enterprise. If you have a dairy farm and a greenhouse, you have two enterprises. The dairy should not prop up a falling greenhouse; nor should a greenhouse carry your dairy.

Having said that, the beauty of a multiple enterprise farm is that one can carry the other in a lean year. That is why this evaluation should be on a three- to five-year period. We need a fair evaluation of each enterprise. A year of low milk prices does not spell a poor performing dairy any more than a crop loss in the greenhouse spells doom.

In order to help you plan where you are going, you need to know where you have been. That is where your plans really pay off. Remember the old saying, "Nobody plans to fail, they simply fail to plan."

Now that we have all this information, how do we use it? We use it as we make our business transfer plan. This will involve the operational and management transfers. The operational transfer will affect the management transfer, so we will start there.

There are many types of operational transfers. First, we can expand and have a joint operation. Second, we can have a gradual transfer or a complete takeover. Or third, it could be a separation or a spinoff. All these are viable options, depending on your situation.

Now to the management transfer. Make sure this is in writing, so all are clear on who makes what decisions. This will reduce conflict and eliminate the "when it's everyone's job, it's no one's job" syndrome. Also, what are the labor expectations? What will the younger generation's role be and what will the older generation's role be? Mom or Dad might say, "I've been milking cows for 30 years; now it is your turn."

While this just scratches the surface, it is a starting point for everyone. Because the transfer of property brings with it many more challenges, we will deal with it in a future article. Until next week, enjoy this place we call home.

Jeff Semler is an Extension educator, specializing in agriculture and natural resources, for the University of Maryland Cooperative Extension. He is based in Washington County. He can be reached weekdays by telephone at 301-791-1404, ext. 25, or by e-mail at jsemler@umd.edu.

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