Joining the family farm with eyes wide openJoining the family farm with eyes wide open
Without proper planning to anticipate cash flow needs of additional family members joining the business, the size of the business may not allow for succession.
April 10, 2023
Family businesses are often complex and making the decision to join the family farm is no different. Most young adults are exited to come back to the farm to do the work they love. The following is a list of questions the next generation should consider answering about their family business, themselves and their family as they make the decision to pursue farm ownership.
About the family business
Is it a business you should own? If the business wasn't your family's, would you be interested in or considering purchasing an ownership interest? Some family businesses are not organized and operated in a fashion that supports continued success.
What direction is the farm headed? Is the business growing or in decline? The life cycle of a business is to grow, mature and decline. It is important to understand where this business is in the cycle. Opportunity may exist in each phase.
Does it have a history of profitability? Past performance isn't a guarantee of future performance but it certainly is an indication of probable business success.
Does it control the right assets? Employing strategic assets is important to business success. Those assets can include human resources, intellectual property or physical assets.
Can it provide cash flow for another family? Most family businesses are sized to meet the financial needs of the principals in the business. Without proper planning to anticipate the cash flow needs of additional family members joining the business, the size of the business may not allow for succession.
Do you have a passion for the family business? Does working with your family in a business fire you up? It takes passion for the family and the business to often work through the challenges associated with family dynamics.
Do you love the industry and work? You will need a passion for the industry and the daily tasks to make owning a business a lifelong endeavor.
Do you love the risk? The business of agriculture is filled with production and financial risks. The stress of these daily risks isn't for everyone. Some of the most successful businesses assume some of the business risk and manage the rest of it.
What role will you play? Playing to your strengths is important. Understanding and communicating your strengths and weaknesses in the role you play in the business will help your team compensate.
Does it align with your goals? Is continuing the legacy of the family farm integral to your personal goals? Or, are there other endeavors you are more passionate about pursuing?
About your family
Does your family have a shared vision? Is your family organized around the same vision of the future of the family farm? If asked individually, would each family member share a similar description of the future state of the family farm.
What are the family dynamics to consider? Every family has personalities, relationships and historical events that create unique dynamics that impact the daily interactions of family members. Understanding those dynamics and how to navigate them is important.
What is the succession timeline? When will we start? How fast will we go? When will it be completed? These are all questions to answer so family members can plan accordingly.
Does your family feel like succession is on schedule? Some families get started early and give themselves time to be tax efficient in transition. Others get started late and feel like they have to hurry the process. It is good to understand your own situation and how much time you have to be thoughtful in your approach.
This is by no means an exhaustive list of questions but it is intended to stimulate thoughts and drive answers. Your situation may inspire you to ask additional questions either of yourself or your future business partners. The important part of this process is to take time to understand and evaluate both the opportunities and challenges associated with business ownership. Let your heart and your mind have an equal vote in this important decision. If your family is looking for help with the business transition process, please contact Jim Marzolf via email.
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