Define your goals for your family farm.
Structuring your business can be complicated and confusing, especially if you have various professionals giving you conflicting advice. How can you effectively combine all that advice to settle on an entity structure that meets all your needs?Before you meet with any professional, it's important to define your goals. This doesn't mean developing an end result or defining your structure. Instead, think about what is most important for you to achieve. For example,
- If one or more of your children want to come back to the farm, transition may be at the top of your list.
- You may want to develop a plan in case of future disability.
- You might be ready to prioritize tax planning to ensure your business is in the best position to provide financial security for your family in the years to come.
- If you farm with family, maybe you need to combine your operations into one farm.
- Risk mitigation could be a priority.
- You may want help ensuring you are in in a position to be eligible for and in compliance with government programs.
- With so many retiring farms and land set to change ownership in the next decade, putting your farm in a position to grow may be a priority.
Ranking your priorities will help the professionals you work with align their recommendations to meet your specific goals.
Ensure everyone is working together.
After you've defined your goals, your next challenge is to get your team of professional advisors to work together. If you already have advisors, ask them if they are willing to work on a team with other professionals. If not, consider replacing them with advisors who are. If you have yet to hire professional advisors, ensure from the outset that whoever you choose is willing to work with others, or even ask an advisor you trust who they have worked with effectively on other similar projects.
When I work with a family farm, I ensure that we have multiple group meetings to get everyone on the same page. I use the farm owner's goals to develop a general structure as a starting point for discussion. If a farmer's number one goal is to minimize tax liability, for example, their starting structure will look different than the structure for someone whose main concern is risk mitigation or transition. That initial structure becomes the baseline for discussions among the advisory group about how to best meet the farm's goals. With everyone’s input, the end result is almost never the same as the starting point. The power of the group provides the farmer with the best possible outcome.
Consider creating more than one entity.
At FamilyFarms Group, we promote starting with a structure that separates capital assets from farming operations. By this, I mean putting things like trucks and equipment in one or more entities that actually do the farming. Generally speaking, this type of structure helps facilitate tax and transition planning as well as liability protection. While this structure seems more complicated at the outset, it can actually create efficiencies and be easier for a farm family in the long run.
While we promote starting with a basic premises of separation of capital assets from operations, no two farming structures end up exactly the same. This is because each farming family has its own distinct preferences about what will work for them. The differences lie in the nuances. The types and numbers of entities, ownership, governance, assets, and purposes of those entities can vary significantly depending on a farm family's particular goals.
Ideally, your advisors will provide you with one or two recommendations and explain the pros and cons of each. After have all this information, ask questions to make sure you really understand their recommendations before making a final decision. You want to be comfortable with your newly selected structure because, after all, you will be the one working with it every day.
FamilyFarmsGroup specializes in helping farm families build the most profitable and sustainable operations possible to ensure that they can support generations of family farmers to come. View our case studies to see how we've helped other farm owners, or click the link below to request a free needs assessment.