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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