It wasn’t cheap. It wasn’t easy. But they believed they could do it and — with help — they did. Now the Gilmers share their story of hammering out a succession plan and the good it is
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Only one-third of family-owned businesses survive the transition to the next generation. Then, out of that third, only one-third survives into the third generation, which works out to just one ninth of the original group. And on, and on.
By any reckoning, the odds should have been against Ontario’s Gilmer family at South Mountain, an hour south of Ottawa. On parts of their land, the family has been farming for six generations. eastern Ontario land — adding up to a pile of corporate assets.
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Then there are the potential clashes of career ambitions, retirement plans and farm visions that bubble up any time you try to bring different individuals, different families and different generations together around something that everyone has so much riding on.
In the Gilmer’s case, specifically, the two original owners wanted to exit, but at different times. Plus, a cousin wanted
TWO GENERATIONS: JEFF MARINER (L) AND JAMES GILMER CAN NOW PLOT ThEIR FUTURES AS FARMERS WhILE ThE SENIOR GENERATION, RIChARD AND REG GILMER, CAN MOVE INTO RETIREMENT KNOWING ThEY’LL BE FINANCIALLY SECURE
But statistics weren’t their only problem, or even their largest. As on so many farms, there seemed to be extra complications at every turn.
When brothers Reg and Richard officially took over the family farm it had been much easier. Their father had incorporated the farm in 1981 for tax purposes, to access a small business development grant and to pass it on, and their path was more or less clear. Things are different now.
For a start, today’s Gilmer Farms is
far more complex. There are 160 milking cows, for instance, plus quota, some expensive barns and almost 800
acres of productive, high-price to join, one potential successor wasn’t completely sure he wanted to farm, and there are several other siblings, all adding up to a potential stalemate or, worse, a quagmire.
The fact that it ended with an agreement that’s drawing praise from all the families says a lot about the family. It also says a lot about the approach that they followed.
Here, the Gilmers talk to us about what their process looked like from the inside, sharing their story with COUNTRY GUIDE so other farmers will know that succession can happen without ripping apart a family, and that it can actually make your business stronger.
Twenty-five years after they signed the papers to take over the farm, the Gilmer brothers at South Mountain in eastern Ontario knew it was time to get serious about passing down the family farm to the next generation.
Richard was ready to retire from farming. In fact, he had already bought a retirement home close by. Younger brother, Reg wanted to keep farming but was open to succession.
The time seemed right for the next generation too. Two of them were working on the farm full-time. They had taken some time for travelling, they’d finished their post-secondary education, and they wanted to take over the business.
Richard’s son, James, enjoys managing the cows while nephew Jeff Marriner (Richard and Reg’s sister’s son) likes field work. Richard and wife Debbie also have two daughters and a younger son, Trevor. Reg and his wife, Charlene have two daughters.
The Gilmer family didn’t let the complexity of their situation put them off. Nor were they scared off by the succession horror stories that floated around the concessions.
Instead, they used those intergenerational wrecks to inspire them to keep working at succession with open minds. These wrecks made them determined to maintain business manners, to compromise a little and to hire professionals to get the job done right.
In a nutshell, their final plan froze the value of the shares of the two brothers and set up a buy-in agreement for Richard’s shares so the next generation could incrementally purchase shares of the corporation. This will slowly transfer ownership without the individuals or the corporation incurring debilitating or limiting debt.
“This strategy is quite common with a corporate rollover or transition to the next generation,” says Larry Morin, farm adviser with Canada Farm Business Advisory Services at Fort Saskatchewan, Alta. “The crystallization allows the retiring generation to retain the equity that they built in the business and allows the next generation to start to share in the future growth of the company.”
Naturally, the Gilmers’ structure is not a template for every situation. “Each situation is unique,” Morin says. “A customized plan needs to be developed for each farm situation that takes into consideration the needs of each participant and the future of the company.”
It also doesn’t mean that it was a simple decision for the Gilmers to reach.
Although the Gilmers wanted this to work, their succession plan took nearly two years and about $30,000 of accountant, lawyer and financial adviser fees to create this structure and shareholder agreement.
“You don’t want to cut costs,” says Richard.
“Go slow and steady,” he adds. “But have some deadlines.”
The plan took a ton of discussion. It demanded some soul searching and above all, it required a commitment to make it work. “We had to be open-minded and flexible,” says Richard. “And in the end, don’t expect to have all the questions answered.”
In fact, having gone through the process, Richard’s belief is that it’s unachievable for a group to prepare for every possible situation. So don’t let the what-ifs halt the whole process, he advises. “With some things, we’ll just have to cross those bridges when we come to them.”
The Gilmers hired an old friend and certified financial adviser, John Anderson from Kingston, Ont., to facilitate. It helped to have someone chair and manage the discussions who was an outsider and who combined business know-how and an understanding of farming to chair the discussions.
“Farmers need to have someone come in and explain what they need to do,” says Reg.
As part of the Growing Forward initiative, the Canadian Farm Business Management Council has created a national online list of farm business advisers and
consultants called National Farm Business Advisor (FBA) Database at
The meetings involved only the current and soon-to-be shareholders — the stakeholders of the corporation. Also, when the discussion turned to dollars, their long-time accountant joined them. Anderson chaired the meetings, kept the group on-topic, used business protocol and gave out “homework” forms to complete before the next meeting.
Business first
Anderson began by having the Gilmers each fill out forms to find out what they wanted.
Strategically, he also used the early days to lead the Gilmers through a review of their financial status to see if and how the corporation could accommodate supporting more owners, essentially making sure they had a healthy horse before they built a cart.
In addition, Anderson helped them create a generalized business plan and to update the operation manuals for each of their jobs. The corporation pays all four of them a salary, and they also hire one full-time and one part-time milker.
With Anderson’s help, the family also mapped out its executive structure — a sort of who’s in charge of what.
Only after they had established a stronger business format, knew everyone’s wants and understood their financial position, did they create a structure to succeed the farm corporation. After a myriad of emails between Anderson and their accountant, they decided to use preferred shares as a way to incrementally transfer the farm corporation.
Succession structure
On April 1, 2009, the two older Gilmer brothers both froze the values of all their shares in the corporation, at an agreed value. These frozen value shares are called preferred shares and were set at a value that allowed them to retire comfortably and yet let the farm be viable, not market value.
“Typically, the company is valued via an agreed method such as appraisal of assets less debt, income valuation approach,” says Morin. “Then a number of preferred shares are issued to the existing shareholders representing the full value of the company.”
Preferred shares are generally non-voting. “The retiring generation must also be willing to give up the reins of the company and sometimes it’s difficult for them to let the younger generation make the decisions,” says Morin.
Jeff sold some land and James took out a loan for an initial payment that went to Richard as a small part of his retirement. The corporation pays dividends to Jeff, James and Reg and the two younger men use that to pay back the loan for the original buy-in.
On that April day, Reg and the two younger men, were each issued equal common voting shares. These common shares can and should grow in value as the farm income and capital value continues to expand. However, new common shares essentially have no value when first issued.
Then over the next 20 years, the two younger men will buy preferred shares from Richard a little bit at a time, every year. When they buy these “frozen shares,” the shares will be converted into common shares.
The plan is that after 10 years, Reg’s common shares will be
consultants called National Farm Business Advisor (FBA) Database at
The meetings involved only the current and soon-to-be shareholders — the stakeholders of the corporation. Also, when the discussion turned to dollars, their long-time accountant joined them. Anderson chaired the meetings, kept the group on-topic, used business protocol and gave out “homework” forms to complete before the next meeting.
Business first
Anderson began by having the Gilmers each fill out forms to find out what they wanted.
Strategically, he also used the early days to lead the Gilmers through a review of their financial status to see if and how the corporation could accommodate supporting more owners, essentially making sure they had a healthy horse before they built a cart.
In addition, Anderson helped them create a generalized business plan and to update the operation manuals for each of their jobs. The corporation pays all four of them a salary, and they also hire one full-time and one part-time milker.
With Anderson’s help, the family also mapped out its executive structure — a sort of who’s in charge of what.
Only after they had established a stronger business format, knew everyone’s wants and understood their financial position, did they create a structure to succeed the farm corporation. After a myriad of emails between Anderson and their accountant, they decided to use preferred shares as a way to incrementally transfer the farm corporation.
Succession structure
On April 1, 2009, the two older Gilmer brothers both froze the values of all their shares in the corporation, at an agreed value. These frozen value shares are called preferred shares and were set at a value that allowed them to retire comfortably and yet let the farm be viable, not market value.
“Typically, the company is valued via an agreed method such as appraisal of assets less debt, income valuation approach,” says Morin. “Then a number of preferred shares are issued to the existing shareholders representing the full value of the company.”
Preferred shares are generally non-voting. “The retiring generation must also be willing to give up the reins of the company and sometimes it’s difficult for them to let the younger generation make the decisions,” says Morin.
Jeff sold some land and James took out a loan for an initial payment that went to Richard as a small part of his retirement. The corporation pays dividends to Jeff, James and Reg and the two younger men use that to pay back the loan for the original buy-in.
On that April day, Reg and the two younger men, were each issued equal common voting shares. These common shares can and should grow in value as the farm income and capital value continues to expand. However, new common shares essentially have no value when first issued.
Then over the next 20 years, the two younger men will buy preferred shares from Richard a little bit at a time, every year. When they buy these “frozen shares,” the shares will be converted into common shares.
The plan is that after 10 years, Reg’s common shares will be
consultants called National Farm Business Advisor (FBA) Database at
The meetings involved only the current and soon-to-be shareholders — the stakeholders of the corporation. Also, when the discussion turned to dollars, their long-time accountant joined them. Anderson chaired the meetings, kept the group on-topic, used business protocol and gave out “homework” forms to complete before the next meeting.
Business first
Anderson began by having the Gilmers each fill out forms to find out what they wanted.
Strategically, he also used the early days to lead the Gilmers through a review of their financial status to see if and how the corporation could accommodate supporting more owners, essentially making sure they had a healthy horse before they built a cart.
In addition, Anderson helped them create a generalized business plan and to update the operation manuals for each of their jobs. The corporation pays all four of them a salary, and they also hire one full-time and one part-time milker.
With Anderson’s help, the family also mapped out its executive structure — a sort of who’s in charge of what.
Only after they had established a stronger business format, knew everyone’s wants and understood their financial position, did they create a structure to succeed the farm corporation. After a myriad of emails between Anderson and their accountant, they decided to use preferred shares as a way to incrementally transfer the farm corporation.
Succession structure
On April 1, 2009, the two older Gilmer brothers both froze the values of all their shares in the corporation, at an agreed value. These frozen value shares are called preferred shares and were set at a value that allowed them to retire comfortably and yet let the farm be viable, not market value.
“Typically, the company is valued via an agreed method such as appraisal of assets less debt, income valuation approach,” says Morin. “Then a number of preferred shares are issued to the existing shareholders representing the full value of the company.”
Preferred shares are generally non-voting. “The retiring generation must also be willing to give up the reins of the company and sometimes it’s difficult for them to let the younger generation make the decisions,” says Morin.
Jeff sold some land and James took out a loan for an initial payment that went to Richard as a small part of his retirement. The corporation pays dividends to Jeff, James and Reg and the two younger men use that to pay back the loan for the original buy-in.
On that April day, Reg and the two younger men, were each issued equal common voting shares. These common shares can and should grow in value as the farm income and capital value continues to expand. However, new common shares essentially have no value when first issued.
Then over the next 20 years, the two younger men will buy preferred shares from Richard a little bit at a time, every year. When they buy these “frozen shares,” the shares will be converted into common shares.
The plan is that after 10 years, Reg’s common shares will be
