Originally presented at the Vermont Grazing Conference on January 17, 2009.

1. Family Farms:
Tips for working
together
The Vermont Grazing Conference Annual conference
Saturday, January 17, 2009

2. Goals for today
 Overview of family business…working with
family
 Farm family businesses
 Succession = working together
Family Farms:
Tips for Working Together

3. Quiz
What is a family business?

4. Definition of a family
business?
 Business employs at least one family
member as owner or partner;
 The family controls ownership and / or
decision-making power;
 Future plans consider succession of the
business to the next generation.
Succession Checklist

5. What is a farm?
 U.S. Census - any establishment which
produced and sold $1,000 or more of
agricultural products during the year.
 Just over 2.1 million farms in the United
States.
 Average farm family exceeds $47,000 per
year needed for basic living.
 Less than 1 in 4 of the farms produce
gross revenues in excess of $50,000.
Family Farms:
Tips for Working Together

6. What is a family farm?
 1997 Census of Agriculture
 90% are owned and operated by individuals
or families.
 6% are partnerships
 “Corporate” farms account for 3% of farm
 90% of those are family owned.
 However, the term “family farm” does not
necessarily equate with “small farm”
Family Farms:
Tips for Working Together

7. Farm type distribution
Type of farm Number of farms Percent of farms
Non-Family Farms 42,300 2.0
Farming Sales > $500,000 61,300 3.0
Farming Sales $250,000 - $499,999 91,900 4.5
Limited Resource 150,300 7.3
Farming Sales $100,000 - $249,999 171,500 8.3
Retirement 290,900 14.1
Farming Sales < $100,000 422,200 20.4
Residential/Lifestyle 834,300 40.4
TOTAL 2,064,700 100.0
Family Farms:
Tips for Working Together

8. The Three Circle Model
Business
Family Ownership
Succession Checklist

9. Pop Quiz
 Is a family farm (choose one)
 A business
 A lifestyle
 A legacy
 All of the above?
Succession Checklist

10. The “Blurry circle” model
Business
Family Ownership
Family Farms:
Tips for Working Together

11. 2007 Family Business survey
 Nearly 60 percent of majority shareowners
in family businesses are 55 or older
 Nearly 30 percent are 65 or older
 Less than 30 percent have succession
plans
 Fewer than 40 percent have a successor
in line and are preparing for the transition.
Source: Family to Family: The Laird Norton Tyee Family Business Survey 2007 (www.familybusinesssurvey.com)
 Succession Checklist

12. Farming succession
 30% of U.S. farm families have not
discussed the issue with family members
 40% of the farmers in this country are 55
years old or older (Bureau of Labor
Statistics).
Family Farms:
Tips for Working Together

13. 2007 Family Business survey
 Nearly 95 percent of respondents indicate
that they manage their family-owned
enterprise like they would any other
business, but the numbers say otherwise.
 Only 56 percent have a written strategic
plan and less than 30 percent have a
written succession plan.
Source: Family to Family: The Laird Norton Tyee Family Business Survey 2007
Succession Checklist

14. Iowa State survey of farmers
 50% had no estate plan
 71% had no named successor
 20% HAD spoken to a banker
 30% HAD spoken to an accountant
 28% HAD spoken to an attorney
Family Farms:
Tips for Working Together

15. Family Business Facts
 More than 30% of all family owned
businesses survive into the second
generation
 12% will still be viable into the third
generation
 Only 3% of all family businesses survive
into the fourth generation level and beyond
Succession Checklist

16. Most important
farm transfer issues
 Clear goals and communication
 Transfer strategies
 Assessing financial strength
 Understanding tax issues
 Wills, trusts & estate planning issues
 Life insurance, power of attorney & health
care issues
Family Farms:
Tips for Working Together

17. Why do family businesses fail?
 Inadequate estate planning;
 Failure to properly prepare and provide;
for the transition to the next generation;
 Lack of funds to pay estate taxes:
In 47.7% of family business
failures, the transition and
ultimate collapse of the firm was
precipitated by the founder’s death.
Succession Checklist

18. Why Prepare?
 Succession faces all businesses and
owners
 If you do not plan, someone will do it for
you
 Provides for (a semblance of) continuity
despite unforeseen circumstances.
Succession Checklist

19. If you learn
only two things today…
1. START NOW!
 Succession planning is important at every
stage of the business.
2. INVOLVE OTHERS…
 Family;
 Stakeholders;
 Professionals.
Succession Checklist

20. SMART Goals
 S
 Specific
 M
 Measurable
 A
 Attainable
 R
 Realistic
 T
 Timely
Succession Checklist

21. 1. Goals - Owner
 Time line;
 When would you like to leave?
 Financial;
 How would you like to leave the business?
 Lifestyle;
 What will you do?
 Manage the plan.
Succession Checklist

22. 2. Goals – Key Stakeholders
 Family members:
 In business
 Out of business
 Partners/investors;
 Employees;
 Others.
 Customers
 Community
Succession Checklist

23. 3. Clearly define stage of business
as it relates to owners exit goals
 Early stage – Survival:
 Owner - entrepreneur
 Not yet profitable but perhaps saleable
 Growth:
 Growing rapidly
 Succession plan as contingency, added value
 Mature:
 Stable cash flow
 Positioned in market
Succession Checklist

24. 4. Business Valuation
 The valuation is only as good as the information
and cooperation that you provide to the analyst;
 Choose an accredited valuation analyst; don't
have Uncle Bob do this; it's too important;
 Cost - $5,000 - $10,000 depending on the level
of analysis and nature of report
(oral, limited, comprehensive);
 Time to complete - from the time you make the
first call to an analyst to the time you get a
completed report - 4 - 8 weeks; most of this time
is spent collecting information.
Succession Checklist

25. 5. Communicate
 Professional advisors:
 Financial
 Legal
 Personal
 Family meetings
 Frequent or at least regularly scheduled
 Off farm or non-working
 Non-family advice & peers
 BOA
 BOD
 Education
 Non-technical
 Strategic
Succession Checklist

26. 6. Explore succession options
 Keep in family:
 Buy-sell agreements
 Gifting
 Trusts
 Outright sale:
 Third party
 Liquidation
 Internal sale:
 Management buy out
 Employees (ESOP or CO-OP)
 Partners
Succession Checklist

27. 7. Have a contingency plan!
 Death
 Disability
 Loss of business value
 Failure to secure sound management or
transition team.
Succession Checklist

28. 8. Identify successor (s) &
future management
 Key positions
 Tools needed to succeed
 Develop skills
 Provide time and space.
Succession Checklist

29. 9. Develop & manage actual plan
 Written & documented
 Stick to goals and time line
 Share with others
 Family
 Employees
 Stakeholders.
Succession Checklist

30. 10. EXIT!!! LEAVE!!! RUN AWAY!!!
 Truly let go!
 Let others succeed;
 Do you have a plan for all your free
time?
 Or perhaps….
Succession Checklist

31. …start a new business!
Succession Checklist

32. Advice from a family farmer
 The time to start the process in not in your 70’s
or 80’s
 Open communication – conflict is OK!
 Don’t rule out the youngsters
 Buy and pay –off a long term care policy
 Emulate the career tracks of Amish farmers
 Farm form teens to mid-40’s.
 Take on less taxing career of teaching or
crafting
Family Farms:
Tips for Working Together

33. FINAL
EXAM

34. If you have learned
only two things today:
1. START NOW!
 Succession planning is important at every
stage.
2. INVOLVE OTHERS…
 Family;
 Stakeholders;
 Professionals.
Succession Checklist

35. Lessons learned
 Farm business transfer, estate planning &
elder law are very complicated
 Laws change frequently so up-to-date
information is critical
 Working with professionals is critical
 Pick those who understand ag-business
 This all takes time, effort and emotion
Family Farms:
Tips for Working Together

36. What is the
Vermont Family Business Initiative?
 Founded in 1998 in the UVM Business
School.
 Provides a series of family business
forums throughout the state.
 Currently 30+ member business in
Vermont, from Bennington to Newport.
 Family owned and closely held.
 Farms welcome
Succession Checklist

37. Contributing partners
 Gallagher, Flynn & Company
 Greg Bourgea, CPA
 Gravel and Shea
 Margi Montgomery, Esq.
 Northfield Savings Bank
 Tim Ross, CFO
 Fleischer Jacobs Group
 Tim Cope
Succession Checklist

38. Additional resources:
 http://uvm.edu/familybusiness
 Click on RESOURCES
 National Farm Transition Network
 http://www.farmtransition.org/
 2007 Family Business Survey
 www.familybusinesssurvey.com
 Family Business Wiki
 http://www.familybusinesswiki.org
Succession Checklist

39. Questions?
 Deb Heleba – UVM Extension
 802-656-4046
 Debra.heleba@uvm.edu
 Daniel Van Der Vliet - Director
 802-656-5897
 daniel.vdv@uvm.edu
Succession Checklist