Are You a 'Business-First' Farm Family?

Buy-sell agreements protect the business, family members

Do you work with your family members? The majority of us in agriculture work with at least some family on the farm. There are a lot of advantages and benefits that come from working with family – but there's a lot of risk too. And you open yourself up to a lot of unnecessary risk if you fail to operate the farm as a business.

The person who I think best sums this up is family business speaker and consultant Jolene Brown. I got to know her this winter at our Ag Edge farm business seminar series. She spoke about the things farm families do that ultimately break up their business, and shared tools to make it strong. During her talk, Jolene asked the farm families: "Are you a business-first family or a family-first business?"

She explained, "In a family-first business, decisions are made on assumptions, habits and wishes. A business-first family honors the family by doing the business right with clear communication, good will and legal documentation."

One of the biggest risks in family business has to do with how ownership interest will be transferred if one of the four 'Ds' happens to a farm owner: death, disability, divorce or departure.

Here's how a 'business-first family' planned to address one of the 4 'Ds' – ahead of time. Three brothers have farmed together successfully for many years. Now one of their sons – the first member of the next generation – is joining the operation as an owner. Currently, he's happily married to his wife, who's a schoolteacher.

As they figured out how to set up the business with this new owner coming in, they considered a difficult theoretical question: How will the farm business stay intact if the son were to go through a divorce? How will all generations protect themselves and others from the 4 'Ds', including divorce?

No one wants to think about that possibility and discussing it just might stir up a bunch of emotions. But without clear, written buy-sell agreements in place, the operation could get into major cash flow trouble.

The four owners stand to lose a lot if there aren't proper written agreements in place to protect them and the farming operation. They could end up having to sell land or farm assets. A similar problem could happen if one of the owners suffers a permanent disability that prevents him from working on the farm.

Related: Next-Generation Farm Decision Making

Buy-sell agreements allow the family to figure out, ahead of time, what will happen and how a buyout would occur. It also puts your banker's mind at ease to know that there is a plan. Many farms have long-standing business relationships in the community. These connections need to be protected if one of the 4 'Ds' were to affect the person who is in charge of lender and business relations.

A 'business-first family' has buy-sell agreements (and other legacy and succession plans) in place for the farm. They do it because they've decided that they want the business to continue. The brothers already made the choice to continue the legacy of their family's farm by starting to bring in the next generation.

So they owe it to each other, to the family, to the next generation and to the operation they've built to put plans in place that protect both the family members and the business. Are you currently working in a business-first family or a family-first business? Which do you want to be?

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