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Family Business Matters       03/25 05:01

   New Frontiers of Family Business

   Consider new ideas and choices today that may represent new frontiers for 
your farm-based company as you contemplate the future of your family business.

Lance Woodbury
DTN Farm Business Adviser

   Owners of family farms and ranches often have a long and storied business 
history. When the land was first acquired, or when a family set out to 
homestead or move to a different location, that purchase or physical move 
represented a new frontier for the family. It was the initiation of a new 
direction. It represented a new strategy. It involved changing where they were 
or what they did in hope of a better future.

   Similar to those defining points of family business history, there are 
choices today that represent new frontiers for the company. These frontiers 
represent changes to your business and to your thinking. Consider the following 
ideas as you contemplate the future.

   -- DIVERSIFICATION. The idea of business diversification is not new, and 
when I mention the idea, the common argument I hear is, "Stay with what you 
know." I remind the family members, however, that what they know stretches far 
beyond simply farming and ranching in their particular geography. Land 
management, real estate analysis, crop production, animal care and nutrition, 
organizing people and equipment, financial acumen and risk management are all 
skills that can be utilized beyond your current application.

   For example, some families have purchased farms or ranches in other 
geographic areas to mitigate weather risk, while others do so to utilize the 
skills of great employees, keeping them committed to the family. Some have used 
their negotiation skills to purchase or develop commercial or residential real 
estate. Other families have started or bought a business they know something 
about because of a long vendor relationship, like a grain elevator, seed 
dealership, tire shop, sprinkler business, construction company or input 
supplier.

   Through diversification, these families have generated a new stream of 
business income, provided an opportunity to bring a family member back to the 
operation or lessened their concentration of risk in a particular place or 
commodity. And, they often started with a small purchase or small investment, 
something they could afford to lose if it didn't work out.

   -- NON-FAMILY OWNERSHIP. As fewer family members return to the farm, passing 
the farm to the next generation becomes more challenging. Even when there are 
family members present, they are not always qualified to lead the company.

   In response, some families begin exploring the involvement of non-family 
members as owners in, and successors to, the traditional family-owned business. 
Non-family members might buy into the operating company, purchase equipment in 
the business or lease land from the family. In some cases, non-family employees 
have been sold company shares at a discount, or they have earned ownership 
through sweat equity. These family-owned businesses have realized that 
continuing their legacy involves people beyond their immediate family.

   -- MERGING OPERATIONS. Finally, as agriculture industry consolidation 
continues, and farms become larger, the smaller farms producing a commodity 
crop find it harder to compete for labor and to manage rising costs. Instead of 
selling out, however, some smaller and medium-sized farms are merging with 
larger operations or combining with other similar-sized farms to achieve 
greater efficiencies and scale. By combining, an exiting farm can often better 
manage the income tax implications of a transition, while receiving value for 
their established base of rented ground. It takes planning with qualified 
professionals, but the value to both sides of a merger can be significant.

   The concept of a frontier, when applied to family business, can represent 
new geographies as well as new ways of doing business. Consider whether your 
next frontier might include diversifying your asset base, bringing non-family 
members into ownership or even merging your operation with a like-minded 
company. In doing so, your legacy might last longer than you think.

   Lance Woodbury can be reached at lance.woodbury@pinionglobal.com




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