Family Business Engagement ?

[Stocker Steve]

Trying to take a longer term approach to family engagement in the business. In the past - - we paid an hourly wage for labor and that worked at the time. Recently have discussed a number of other approaches like an LCC or owning specific cows or setting up separate enterprises. Any tips here?

 

[SBMF 2015]

What about a % of the calf crop instead of owning individual cows? That way if one of the kids cows looses a calf every one looses equally.

Separate enterprises can work, but can get sticky in a hurry. The farm that I'm herdsman for; the father owns ground, the son rents ground. Son owns planter and combine. Father owns all other equipment. One fuel barrel. I have heard more arguments about how much fuel gets used in who's ground. To last me a life time.

IMO it's just smoother if everyone has skin in the game. Everyone feels good when you saver a calf and have an extra one to sell in the fall. And everyone feels part of the pain of paying a repair bill.

As time goes by, you can either expand or transfer a higher % to the family.

 

[Stocker Steve]

A % ownership takes the worry out of picking the best heifer. Does this imply an LLC type structure?

 

[SBMF 2015]

Maybe. I've never looked up the definition of LLC. But it helps the younger generation get started. They probably can't go barrow money to invest in the farm like the established older generation can. They can however, work more and their extra labor is what gains them a higher % of ownership over time.
Also it doesn't just get handed to them, they get a feel of how important proper management is to the long term success of the farm.

 

[Brute 23]

Dave Ramsey has some good info on generational secession. Cant think of the book and author he refers to all the time.

 

[KAstocker]

I would think it would be best to keep things simple. Pay for labor. Whoever has the assets gets profits and losses. I don't believe in freebies. The younger generation can get their freebies when you die. Succession could naturally happen by the older generation letting the younger generation start filling the land with their own cattle. It would be more complicated with farming with so much machinery but I've heard of the younger generation renting land and equipment from the older generation.

I don't have experience with this though. Just what I would propose if I were going through it.

 

[Dsth]

how many people are involved in this enterprise? I started working for an allowance on the family farm. left the farm for a few years and came back and started renting the ground, took out a loan for the cattle, and was able to use the machinery that was already there. when cattle were paid off, we had an appraiser come in for the machinery. we then took out loan for machinery. next a loan for the land. if you have more people involved, it would be more complicated.

 

[Silver]

Are you trying to plan for a future transition or just keep them involved while they are around? (Assuming your talking about your children)

 

[sstterry]

@NonTypicalCPA should be able to explain LLC's better than I. I understand the concept, but that is outside of my line of work.

 

[Stocker Steve]

Are you trying to plan for a future transition or just keep them involved while they are around? (Assuming your talking about your children)

Goals are to keep them involved, and to learn some business skills. Transition is a ways off.

 

[Silver]

If a future transition is a possibility, and you run your business as a limited company, accountants have told me it's a good idea to form another class of shares and freeze the value of those shares. This has several tax advantages for both you and your kids when the time comes, but it would take an accountant to explain why that is lol.
As far as keeping them involved, when I was a kid and buying cows my dad took 2/3 of my calf crop for "expenses". If nothing else this taught me that there was an expense side to the equation and a live calf was not "free money" but left me enough to feel like I was a part of things and had a chance to get ahead.

 

[Rydero]

I've been pleasantly surprised how the engagement level changed when my teenage girls each "bought" an animal. They always had to come help with cattle but now they just look at them differently, pick out animals they like etc.

We structured it so they bought them at fair market value. I finance them so it's so much a year for the animal (3 years), feed at fmv, pasture fmv, anything else is on the house. They also did a few bottle feeders the summer before (extra twin from me and a couple from my boss), had them track the milk replacer so they had a little lump of money to put towards the animals they bought.