Here are some ideas you can incorporate into your farm’s communication code of behaviour:

Start with the right people making the right decisions at the right time in the right place

For example, a dairy farm held Monday meetings at mid-morning coffee break to discuss operations, but during the busy season these meetings were consistently skipped. Since the bookkeeper didn’t need to attend, they shifted the meetings to Mondays at 6:15 a.m. This 20-minute, stand-up meeting in the barn office provided an opportunity to compile everyone’s to-do lists into a weekly task list on a white board.

They captured further efficiencies by setting a meeting time limit and recording decisions. They also set up a separate monthly lunch hour business meeting, which included the bookkeeper, to review cash flow and to make decisions on anything worth $2,000 or more.

Get stuff done

Like most of you, I absolutely hate meetings that waste time. A common waste of time at business meetings is getting distracted by idle chit chat and tasks. Farmers are often so task-focused that they don’t give business decisions enough attention. To stop task distraction, the business leader needs to communicate clear goals about what must get done. For example, the leader might send a pre-meeting text with a list of decisions to be made and ask if anyone has anything to add.

One successful dairy farmer told me that his lawyer sister has a rule she follows for family meetings: “No agenda, no attenda.” Take a few minutes to send a draft agenda before the meeting and ask if anyone has anything else that needs to be discussed. This will eliminate surprises and provides people time to think about what they might like to discuss and to gather extra information ahead of time. This also ensures the meeting time will be well invested.

Your first meeting agenda item: What will your farm’s ground rules be?

Be present, be focused

Nothing is more distracting at a meeting than when a person is on their phone or jumps up and leaves in the middle of a discussion. Before the meeting starts, state that if someone is asked to attend, their opinion and input is essential to the meeting. A few other ground rules to follow:

• Arrive on time
• Stick to the agenda
• Put phones aside
• Meet in a place without a lot of distractions
• Share information ahead of the meeting
• Keep it under an hour, preferably a half-hour

Be the crew, not a passenger

Your family business is a team sport so everyone who attends needs to share the air and be ready to participate. The best teammates and business partners ensure that everyone has a chance to share what they need to say. A helpful ground rule for larger groups is the 2×2 (or 3×3, etc.). This means everyone agrees to wait to speak again only after two other people have spoken or two minutes have passed.

Use a ‘parking lot’

Every meeting should have some way to set aside topics for further discussion if it’s not a priority, the discussion is getting too heated or more information is required. You don’t want to lose or forget the idea, so everyone should have the right to say, “For the sake of time, can we put this idea aside until the next meeting and move on?”

Keep a blank paper in the middle of the table to jot down these “parked” ideas (with the promise it will be on a future agenda). On one board that I chair, I’ve added a column in their post-meeting key action notes called parking lot ideas. Those ideas are fodder for future agendas and a built-in tool for resolving conflict. Parking the idea gives people a chance to cool off, gather their thoughts or seek more information before addressing a contentious topic.

Discretion, honesty and grace required

Honesty is the pillar of trust and trust is the pillar of communication in working well together. This means speaking up to share your opinion. When you say nothing, it’s commonly considered you agree. Child-parent communication tends to carry a certain level of acceptable untruths (for example, Santa, the Easter Bunny, the tooth fairy, sleepovers-turned-parties, not inhaling), but honesty is required of adult business partners — even if you don’t want to hear it as a parent or child.

Trust is imperative for effective communication, so everyone needs to agree not to talk about business decisions/discussions outside the meeting room. Although it sometimes helps to “debrief” with a trusted outside person your business and family are not gossip to be shared at the local arena, barbershop or coffee shop.

Come to each meeting with a bucketful of grace and be prepared to hear something you don’t like. Remember: it’s not personal. Instead, consider these discussions as a time to learn more, to tolerate and to teach.

Use “I” statements instead of “you.” This motivates discussion and limits perceptions of blame or shame. For example, say: “I feel that approach will take too long” and not “You are procrastinating.”

Attack a problem, not a person

Family members can be very competitive and critical, so it’s easy for families to get off track, start firing insults and drag up history. Good decision-making is not about winning or losing.

Focus is so important for making collaborative decisions. Most collaborative decisions are not “or” but rather “and” solutions. In other words, combining shared ideas creates better solutions than any singular idea. It’s not about you or your position on a topic, it’s about pulling together all the information and ideas to find the best solution.

Accountability born from consistency, key actions and execution

Meeting leaders must ensure that each agenda item is allotted enough time for discussion. Once a decision is made, repeat it back to everyone and ensure that it’s written down, including the date the decision was made and the name of the person who is responsible for carrying out actions related to the decision.

In my experience, even the most important topics can usually be articulated in under three minutes. Anything beyond that and people’s attention span decreases. Split complex ideas into one or two points that can be more easily consumed and encourage discussion. Then state the next couple of points and ask for questions. If people’s eyes are glazing over you may be dominating the discussion. To be more self-aware pause and use the WAIT technique: ask yourself, “Why am I talking?”

State if this a brainstorming session up front. If that’s what you’re planning, let everyone know the meeting won’t necessarily be about decisions but about brainstorming solutions. This helps everyone understand that they’ll need to be open to ideas and that the meeting might run a bit longer.

Remember when brainstorming:

• Imperfect ideas are okay
• Quantity of ideas is welcome
• Blue-sky thinking is okay (i.e., exploring ideas without self-imposed limits)
• Don’t get caught up in things you can’t control
• Tangible but not well-thought-out ideas are okay at this point
• Progress is the priority. Answers will emerge throughout the process
• Defer quick judgment and be willing to let ideas go

Setting rules for how your farm will meet about business can be a difficult cultural shift for the whole farm and family, but it’s worth it.

Collectively establishing a way of communicating that is more productive, professional and polite creates a culture of efficiency and respect for your business and family.

The post ‘No agenda, no attenda’: How to professionalize your family farm meetings appeared first on Country Guide.

Over the last 50 years, siblings farming in partnerships or corporations has proven to be a thriving business model.

And even though working with family can be difficult, successful sibling operations seem to leverage the unique advantages of their relationships to create growth for their farms.

While scale matters, it takes more than an economic advantage to make a family farm grow. Successful sibling-run farms consistently implement practices that any farm with multiple decision makers can apply to their own operations.

Here are some examples of sibling-run farms and what they do to drive growth and maintain relationships.

Align values and goals

One of my favourite sibling farm businesses is led by two very different brothers. Like the cheeky definition of a mullet (a short-in-the-front, long-in-the-back hairstyle made popular in the 1980s), one brother is all business in the front while the other is the party in the back — meaning despite diverse personalities and skills, they make it work.

Leaning into each other’s personalities, specialized skills and knowledge, they’ve expanded the original family “pick-your-own” farm business into multiple farm markets while maintaining quality homegrown produce, the core foundation of their business.

Their goals for the farm are aligned, but their roles are separate. They stay out of each other’s lanes. Each sibling strives to achieve their individual indicators of success and have autonomy to make decisions in their areas of expertise. Since they’re both focused on doing what they like, they’re less stressed and more efficient.

No matter how diverse the enterprise or its people, consistently well-run farms define and align their core values.

Governance matters

Every family business can benefit by establishing rules around accountability and finding consistent ways to make decisions collaboratively. This becomes even more important when siblings work together, because smart decision-making structures make for better farms and happier families.

One of my favourite examples of this type of collaborative management structure comes from a dryland farm in southern Saskatchewan. The sister oversees grain operations, one brother is a skilled mechanic and manages the shop, and the other brother ties it all together with his financial acumen and by ensuring consistent communication and decision-making.

The farm also has an advisory board to add an extra level of knowledge and perspective to decisions. Because the advisory board acts as an objective third party, conflicts tend to be resolved more quickly and civilly.

The siblings meet regularly to talk about operations and carve out separate time slots to discuss business. They have very clear rules on what decisions they will make together and how majority rules.

Predetermine ways to resolve conflict

The reality is that the more individuals there are that need to/want to weigh in means that there will more disagreements, more information and opinions, and it will take longer to make decisions.

It’s important to have everyone agree upfront on consistent, effective ways to resolve disagreements. For example, one farm I knows says decisions over $10,000 require 100 per cent consensus or they simply don’t do it. Another multiple-sibling operation developed a cascade of questions to help guide large expansion decisions: Does it meet our core values? Can we afford it? Can our people handle it? What other equipment purchases will be required to make it happen?

Although difficult, it’s also imperative to include parameters in business agreements for how a business will end and how individuals can exit. Splitting up can be complex and expensive, so build in exit routes right from the start.

Compensation for the future

Compensation is a particularly tricky topic for siblings in business together. Add in the complexity of gifts, non-monetary benefits, such as housing, and each individual’s expectations, changing needs, rising educational costs and spousal off-farm incomes and it can get messy.

During the succession process parents will often start by giving equal pay and equal ownership shares to each sibling. But what happens when inflation takes off, or a failed crop means the farm can’t afford it all? Should a sibling who is picking eggs get paid the same as the sibling who has invested money and management decisions? How do you deal with maternity or paternity leave or farm-owned houses?

Tying compensation directly to jobs instead of people makes the process more objective. One way to do this is to set and track key performance indicators (KPIs) for each role. For example, gross margin per litre could be tracked for the task of feeding the dairy herd. KPIs create a culture of continual improvement and accountability.

In Manitoba, a farm with three sibling operators uses a commission-based payroll. Each manager receives a set percentage of the net income of their separate enterprise plus a base wage from the whole farm. Although it takes more accounting work, they find it has encouraged a growth mindset and lessens their natural competitiveness and rivalry.

Set boundaries

My neighbours have a very successful cropping operation and many years ago I asked one of the brothers what made their business so successful. His response stayed with me: he and his sibling had each other’s’ backs when things went wrong, and they never took their work disagreements home.

Successful sibling businesses set boundaries for themselves and their families. One set of dairy farming brothers I know decided after a couple of years to amicably split the herd and assets and share some machinery instead of forcing themselves to work together. They genuinely tried to make the business relationship work but after five years they agreed that each had very different priorities and goals.

They used the divvied-up livestock and quota as a base for their individual farms and signed an agreement to work together on crop production. This tough decision saved their relationship.

They continue to help each other to this day and, most importantly, the brothers still love each other.

The post The Secret Sauce of Sibling Run Farms appeared first on Country Guide.

Now, you want your estate to help the future generation succeed — not create problems or heartache for your family.

But if you want your estate to create a legacy of positivity, you’ll have to proactively communicate your wishes through an estate plan.

Like most people, farmers struggle to talk about estate plans. A recent survey by Investment Planning Counsel indicates that 58 per cent of clients had not talked to their family about their estate.

Communicating about a farm estate plan is even more important because the legacy isn’t just financial. Farm inheritance deals with deep traditions tied to the land and the farm, assets gifted to successors and the tremendous increase over time in farm asset values.

Although there’s no obligation to disclose the contents of your plan during your lifetime, keep in mind that assumptions and worries are born in that knowledge gap (or rather lack of knowledge gap), possibly creating unintended problems for your heirs. It can also help to talk about your estate when everyone is calm and better able to listen to your wishes rather than when they’re dealing with the stress and pain of grief.

Aim for low or no drama. Presenting your estate plan is not about getting attention with a big reveal, setting off squabbles or fueling entitlement. This is an opportunity to create accountability around your wishes, teach the next generation about the importance of financial planning and make sure your family knows how much they mean to you.

People often anticipate that sharing their estate plans will lead to conflicts, so they avoid these discussions altogether. If you believe that discussing your plan could cause more harm than good, ask yourself why you feel that way and think of other ways you can help your family learn to communicate about money and build stronger trusting relationships. Sometimes it helps to have a trusted third party guide you through these tough conversations.

Follow these tips to have better conversations about your farm estate plans:

1. Carefully choose what you want to share. Before starting a difficult conversation, it can help to gather your thoughts and jot down a few notes beforehand. In my consulting career I’ve noticed that sharing estimates instead of specifics is better because financials are always changing when you are alive. For example, you might say, “The plan is for the home farm to be sold, and the proceeds split equally between each of the grandchildren and potentially great-grandchildren.”
   
   On the other hand, details matter when you’re talking about who your executor will be, who will have power of attorney and who is responsible to execute the wishes of your living will. (A living will outlines your instructions and preferences for health care if you’re unable to express them yourself.)

2. Let them know you are prepared. Create a secure document that contains all the important information your executor and/or holder of power of attorney will need to carry out your wishes in the event of incapacitation or death and let them know where you keep it. Information could include:

• Where you keep your will, power of attorney and living will. Is there a secondary will for the farm?
• Name and contact information of your executor, lawyer, financial planner and accountant.
• Farm asset list, which includes parcels of land listed by legal description, common name, whether there is any outstanding debt and whose name they are in. Where do you keep deeds, rental agreements and mortgage agreements?
• A list of off-farm investments, personal insurance and accounts. Include contact information for financial advisors, life insurance broker and banker.
• Funeral plans, such as cemetery plots and any special wishes.
  
  You’ll also want to make sure that all the important players (executor, holder of power of attorney, etc.) know each other and their respective roles. Introduce your executor to your financial planner, lawyer and accountant. This can help each of them better navigate the situation when the time comes. Executors are often paid, so let your family know ahead of time if that’s what you intend to do.
  
  Choose an executor who can communicate regularly with beneficiaries. Your executor does not have to be related but does have to be organized, patient and understand your wishes.For a free template that can help you organize the above, visit farmersbridge.ca and download the Because I Love You list.)

3. Start with the living plan. Share how your financial plan has been set up to take care of you (and your spouse) as you age and how you plan to cover additional costs, such as extra health care, funeral expenses and taxes. Nobody wants to be a burden, but the reality is that many of us will require extra help as we age. This responsibility should not be silently assumed or automatically delegated to the farm successor or the females in the family.
   
   Having these conversations when you’re still healthy minimizes worry or conflict. It also creates a safe time for the family to discuss alternative care solutions and for you to indicate your preferences now rather than have random people reactively decide for you later.

4. Be inclusive and allow room for questions. Set aside specific times to discuss important issues. Whatever you do, do not have it during family get-togethers such as Thanksgiving dinner! One family I know meets once a year to share information — from wills to health care plans to who is hosting family holidays — and then go out for a fun dinner together afterwards.
   
   Adding a formal structure to family meetings can keep discussions focused, smooth and productive. Try to keep them to under an hour and don’t feel that you need to tackle everything at once. You can always book another meeting if it takes the pressure off.
   
   Remember that you’re teaching your family how they can share information and make decisions together when big issues, such as health problems and death, inevitably occur.
   
   And family meetings don’t require everyone to be physically in the room; virtual meetings can work as well. For example, during COVID my mom, who was having health issues, was lonely. My siblings started hosting Dorothy Zoom calls every Sunday at 6 p.m. A few months later, when she was undergoing cancer surgery, these calls became so important to share information about her health care, and, later, palliative care and her final wishes.

5. Introduce your family to trusted professional advisors. To smooth the execution of your plan, let your family meet advisors involved in your estate planning. It can be as simple as inviting your financial planner to your family meeting to explain issues related to your plan. Or invite your insurance agent to explain how life insurance is part of your succession plan or have your farm accountant explain the farm rollover rule and how your estate tax planning has taken advantage of that legislation.
   
   This can be another great opportunity to teach the next generation about money and tax planning! Although the next generation will likely find their own trusted advisors, you are empowering them with additional supportive people and resources.

6. Explain your estate objectives. Hearing the words from your own mouth about what you want to accomplish with your estate gives your benefactors and executor clarity and purpose. Guessing at what someone wants when they are dead is fraught with misguided intentions, even if they are good intentions. This grey area is often where conflicts arise within families. If you are clear up front, you release them from an unwinnable guessing exercise and avoid negative feelings of self-worth or wrongdoing.

The post How to talk about your farm succession plan appeared first on Country Guide.

The reality is that it takes much longer. 

In a 2017 survey by Business Development Canada (BDC), five out of six entrepreneurs believed that the transition process can be completed in two years or less. Ironically, the survey also found that business succession plans can often take up to a decade to implement. 

That’s because most people think a succession plan is simply a bunch of legal documents signifying change of ownership. 

But it’s much more than a single transaction. 

If you choose to sell the farm you’ll need to plan for taxes, housing, retirement and your estate. 

If there is a next generation to take over the farm business, it gets even more involved. A series of co-created agreements, including everything from compensation, roles and responsibilities, housing, training and even prenuptials or cohabitation agreements, should be drafted.

In conjunction, you will also create a new business plan, estate plan and a retirement plan — all of which need to be communicated to farming and non-farming family members.

Succession is one of the most complex times for a business and family to navigate in a lifetime, so it’s important to give it the extra time and effort it deserves. 

More time often means more choices

When changes are rushed or forced, they tend to be rejected or opposed, and stress levels naturally increase. There is denial and resistance and emotions erupt. 

Succession is a non-linear process. Be prepared for some sidesteps, gaps and evolving relationships from parent-child to business partners. Fortunately, it’s often in these gaps and missteps where I’ve witnessed people learn the greatest lessons, especially that of self-awareness.

Allowing more time to transition through the process can allow for setbacks, stalling and something called “succession fatigue.” Long-time Canadian farm family coach Elaine Froese calls this “getting stuck.” 

A slower succession process can also provide time to build off-farm investments, diversification of enterprises or additional education and experiences. 

The RBC report, Farmers Wanted, identified three skills future farmers are going to need to be successful: technology, business/finance, and people management and leadership. Slowing down the transition of responsibilities can allow the next generation to apply and learn these important skills, before handing them full responsibility and ownership of the business. This period is when the next generation tries new skills and ideas, gathers information and their own support system, builds confidence in their own abilities and learns from their mistakes.  

What the BDC survey didn’t explain was that there is power in this slow, complicated process. By braiding together agreements and plans, the results will be stronger. The next generation will acquire much needed skills and knowledge, and the outgoing generation develops trust in these skills. It also gives everyone time to adapt to and accept these massive changes. 

Eventually, over time, with support and communication, the change is understood and integrated. Remember, too, that staff, non-farming family, advisors and suppliers are affected by your farm’s management and ownership transition, so give everyone space to process and accept the change.

Adjustment period

Too often farmers procrastinate until a big life event forces succession planning action. The amplified emotions during these events are not a healthy environment for making good decisions, for learning or for accepting change. 

There’s value and power in the process of planning for both generations. Good planning requires informing, discussing and collaborating, which takes longer than an individual making decisions alone. Recent research shows these strategic discussions result in more robust, profit-driving decisions and are fertile training ground for future leaders. 

The outgoing generation also needs to learn new things as they shift from doing tasks to training, mentoring and encouraging the next generation on how to do them. 

The outgoing generation needs extra time to work on overall long-term strategies for the business, fitting into their new roles, preparing themselves for a different sort of life and developing new passions. Like a retiring athlete, the exiting generation of farmers see their farm as a key part of their identity and fear a loss of purpose. It’s important for their health and well-being to give them time to adjust.  

Both generations need to understand that change, even positive change, can be difficult and emotional and it takes time to build trust and confidence. Agreed on timelines can be helpful guidelines for the transition of skills and allow for the whole family to emotionally accept the change.

Instead of cramming in succession plans, take the time to build a smoother transition. It will be time well spent.

Timelines are guidelines

To help get your head around and guide this complicated time of change write out a transition timeline. 

The outgoing generation can start with a line from their current age up until 85 years old, the average age of death in Canada. Mark down important points, for example, when you turn 60 and 65 or when you no longer want to milk cows or be responsible for grain marketing. Make sure you include other key personal events, such as when your spouse is retiring.

The next generation should draw a similar lifeline from their current age to 65 years old, marking down key events and indicating any debt payment due dates. 

Take a moment together to compare the two timelines — and make sure to do it in pencil. There are no guarantees about absolute dates. This is simply a way to think about your dreams in terms of our most limited resource: our time on this earth. 

The future awaits.

The post Can slowing down farm succession really work? appeared first on Country Guide.

Here are some ideas you can incorporate into your farm’s communication code of behaviour.

1. Start with the right people making the right decisions at the right time and the right place. For example, a dairy farm held Monday meetings at mid-morning coffee break to discuss operations, but during the busy season these meetings were consistently skipped. Since the bookkeeper didn’t need to attend, they shifted the meetings to Mondays at 6:15 a.m. This 20-minute stand-up meeting in the barn office provided an opportunity to compile everyone’s to-do lists into a weekly task list on a white board.
   
   They captured further efficiencies by setting a meeting time limit and recording decisions. They also set up a separate monthly lunch hour business meeting, which included the bookkeeper, to review cash flow and to make decisions on anything worth $2,000 and more.
2. Get stuff done. Like most of you, I absolutely hate meetings that waste time. A common waste of time at business meetings is getting distracted by idle chit chat and tasks. Farmers are often so task-focused that they don’t give business decisions enough attention. To stop task distraction, the business leader needs to communicate clear goals about what must get done. For example, the leader might send a pre-meeting text with a list of decisions to be made and ask if anyone has anything to add.
   
   One successful dairy farmer told me that his lawyer sister has a rule she follows for family meetings: “No agenda, no attenda.” Take a few minutes to send a draft agenda before the meeting and ask if anyone has anything else that needs to be discussed. This will eliminate surprises and provides people time to think about what they might like to discuss and to gather extra information ahead of time. This also ensures that meeting time will be well invested.
   
   Your first meeting agenda item: what will your farm’s ground rules be?
3. Be present, be focused. Nothing is more distracting at a meeting than when a person is on their phone or jumps up and leaves in the middle of a discussion. Before the meeting starts, state that if someone is asked to attend, their opinion and input is essential to the meeting. A few other ground rules to follow:
   • Arrive on time.
   • Stick to the agenda.
   • Put phones aside.
   • Meet in a place without a lot of distractions.
   • Share information ahead of the meeting.
   • Keep it under an hour, preferably half an hour. Most people simply cannot keep focused longer than an hour.
4. Be the crew, not a passenger. Your family business is a team sport so everyone who attends needs to share the air and be ready to participate. The best teammates and business partners ensure that everyone has a chance to share what they need to say. A helpful ground rule for larger groups is the 2×2 (or 3×3 or …). This means everyone agrees to wait to speak again only after two other people have spoken or two minutes have passed.
5. Use a parking lot. Every meeting should have some way to set aside topics for further discussion if they’re not a priority, the discussion is getting too heated or more information is required. You don’t want to lose or forget the idea, so everyone should have the right to say, “For the sake of time, can we put this idea aside until the next meeting and move on?”
   
   Keep a blank paper in the middle of the table to jot down these “parked” ideas (with a promise that it will be on a future agenda). On one board that I chair, I’ve added a column in their post-meeting key action notes called Parking Lot Ideas. Those ideas are fodder for future agendas and a built-in tool for resolving conflicts. Parking the idea can also give people a chance to cool off or gather their thoughts or more information before addressing a contentious topic. 
6. Discretion, honesty and grace required. Honesty is the pillar of trust and trust is the pillar of communication and being able to work well together. This means speaking up to share your opinion. When you say nothing, it’s commonly considered that you agree. Child-parent communication tends to carry a certain level of acceptable untruths (for example, Santa, the Easter Bunny, the tooth fairy, sleepovers-turned-parties, not inhaling), but honesty is required of adult business partners, even if you don’t want to hear it as a parent or child.
   
   Trust is imperative for effective communication, so everyone needs to agree not to talk about business decisions/discussions outside the meeting room. Although it sometimes helps to “debrief” with a trusted outside person your business and family are not gossip to be shared at the local arena, barbershop or coffee shop.
   
   Come to each meeting with a bucket of grace and be prepared to hear something you don’t like. Remember that it’s not personal. Instead, consider these discussions as a time to learn more, to tolerate and to teach.
   
   Use “I” statements instead of “you.” This motivates discussion and limits perceptions of blame or shame. For example, say, “I feel that approach will take too long” and not “You are procrastinating.”
7. Attack the problem, not the person. Family members can be very competitive and critical so it’s easy for families to get off track, start firing insults and dragging up history. Good decision-making is not about winning or losing.
   
   Focus is so important for making collaborative decisions. Most collaborative decisions are not “or” but rather “and” solutions. In other words, combining shared ideas creates better solutions than any singular idea. It’s not about you or your position on a topic, it’s about pulling together all the information and ideas to find the best solution.
8. Accountability is born from consistency, recording key actions and execution. Meeting leaders must ensure that each agenda item is allotted enough time for discussion. Once a decision is made, repeat it back to everyone and ensure that it’s written down, including the date the decision was made and the name of the person who is responsible for carrying out actions related to the decision.
   
   In my experience, even the most important topics can usually be articulated in under three minutes. Anything beyond that and people’s attention span decreases. Split complex ideas into one or two points that can be more easily consumed then encourage discussion. Then state the next couple of points and ask for questions. If people’s eyes are glazing over perhaps you are dominating the discussion. To be more self-aware pause and use the W.A.I.T. acronym: ask yourself Why am I talking?
9. State whether it’s a brainstorming session up front. If you’re planning a brainstorming session, let everyone know that the meeting won’t necessarily be about decisions but about brainstorming solutions. This helps everyone understand that they’ll need to be open to ideas and that the meeting might run a bit longer. Remember when brainstorming that: 
   • Imperfect ideas are okay.
   • Quantity of ideas is welcome.
   • Blue-sky thinking is okay (i.e., exploring ideas without self-imposed limits).
   • Don’t get caught up in things you can’t control.
   • Tangible but not fully thought-out ideas are okay at this point.
   • Progress is the priority. Answers will emerge throughout the process.
   • Defer quick judgement and be willing to let ideas go.

Setting rules for how your farm will meet about business can be a difficult cultural shift for the whole farm and family, but it’s worth it. Collectively establishing a way of communicating that is more productive, professional and polite creates a culture of efficiency and respect for your farm business and family.

The post Ground rules for farm family communications appeared first on Country Guide.

Now, you want your estate to help the future generation succeed — not create problems or heartache for your family. 

But if you want your estate to create a legacy of positivity, you’ll have to proactively communicate your wishes through an estate plan. 

Like most people, farmers struggle to talk about estate plans. A recent survey by Investment Planning Counsel indicates that 58 per cent of clients had not talked to their family about their estate. 

Communicating about a farm estate plan is even more important because the legacy isn’t just financial. Farm inheritance deals with deep traditions tied to the land and the farm, assets gifted to successors and the tremendous increase over time in farm asset values.

Although there’s no obligation to disclose the contents of your plan during your lifetime, keep in mind that assumptions and worries are born in that knowledge gap (or rather lack of knowledge gap), possibly creating unintended problems for your heirs. It can also help to talk about your estate when everyone is calm and better able to listen to your wishes rather than when they’re dealing with the stress and pain of grief. 

Aim for low or no drama. Presenting your estate plan is not about getting attention with a big reveal, setting off squabbles or fuelling entitlement. This is an opportunity to create accountability around your wishes, teach the next generation about the importance of financial planning and make sure your family knows how much they mean to you. 

People often anticipate that sharing their estate plans will lead to conflicts, so they avoid these discussions altogether. If you believe that discussing your plan could cause more harm than good, ask yourself why you feel that way and think of other ways you can help your family learn to communicate about money and build stronger trusting relationships. Sometimes it helps to have a trusted third party guide you through these tough conversations.

Follow these tips to have better conversations about your farm estate plans:

1. Carefully choose what you want to share. Before starting a difficult conversation, it can help to gather your thoughts and jot down a few notes beforehand. In my consulting career I’ve noticed that sharing estimates instead of specifics is better because financials are always changing when you are alive. For example, you might say, “The plan is for the home farm to be sold, and the proceeds split equally between each of the grandchildren and potentially great-grandchildren.”
   
   On the other hand, details matter when you’re talking about who your executor will be, who will have power of attorney and who is responsible to execute the wishes of your living will. (A living will outlines your instructions and preferences for health care if you’re unable to express them yourself.)
2. Let them know you are prepared. Create a secure document that contains all the important information your executor and/or holder of power of attorney will need to carry out your wishes in the event of incapacitation or death and let them know where you keep it. Information could include:
   • Where you keep your will, power of attorney and living will. Is there a secondary will for the farm? 
   • Name and contact information of your executor, lawyer, financial planner and accountant.
   • Farm asset list, which includes parcels of land listed by legal description, common name, whether there is any outstanding debt and whose name they are in. Where do you keep deeds, rental agreements and mortgage agreements?
   • A list of off-farm investments, personal insurance and accounts. Include contact information for financial advisors, life insurance broker and banker.
   • Funeral plans, such as cemetery plots and any special wishes.
     
     You’ll also want to make sure that all the important players (executor, holder of power of attorney, etc.) know each other and their respective roles. Introduce your executor to your financial planner, lawyer and accountant. This can help each of them better navigate the situation when the time comes. Executors are often paid, so let your family know ahead of time if that’s what you intend to do.
     
     Choose an executor who can communicate regularly with beneficiaries. Your executor does not have to be related but does have to be organized, patient and understand your wishes.
     
     (For a free template that can help you organize the above, visit farmersbridge.ca and download the Because I Love You list.)
3. Start with the living plan. Share how your financial plan has been set up to take care of you (and your spouse) as you age and how you plan to cover additional costs, such as extra health care, funeral expenses and taxes. Nobody wants to be a burden, but the reality is that many of us will require extra help as we age. This responsibility should not be silently assumed or automatically delegated to the farm successor or the females in the family.
   
   Having these conversations when you’re still healthy minimizes worry or conflict. It also creates a safe time for the family to discuss alternative care solutions and for you to indicate your preferences now rather than have random people reactively decide for you later.
4. Be inclusive and allow room for questions. Set aside specific times to discuss important issues. Whatever you do, do not have it during family get-togethers such as Thanksgiving dinner! One family I know meets once a year to share information — from wills to health care plans to who is hosting family holidays — and then go out for a fun dinner together afterwards.
   
   Adding a formal structure to family meetings can keep discussions focused, smooth and productive. Try to keep them to under an hour and don’t feel that you need to tackle everything at once. You can always book another meeting if it takes the pressure off.
   
   Remember that you’re teaching your family how they can share information and make decisions together when big issues, such as health problems and death, inevitably occur. 
   
   And family meetings don’t require everyone to be physically in the room; virtual meetings can work as well. For example, during COVID my mom, who was having health issues, was lonely. My siblings started hosting Dorothy Zoom calls every Sunday at 6 p.m. A few months later, when she was undergoing cancer surgery, these calls became so important to share information about her health care, and, later, palliative care and her final wishes.
5. Introduce your family to trusted professional advisors. To smooth the execution of your plan, let your family meet advisors involved in your estate planning. It can be as simple as inviting your financial planner to your family meeting to explain issues related to your plan. Or invite your insurance agent to explain how life insurance is part of your succession plan or have your farm accountant explain the farm rollover rule and how your estate tax planning has taken advantage of that legislation.
   
   This can be another great opportunity to teach the next generation about money and tax planning! Although the next generation will likely find their own trusted advisors, you are empowering them with additional supportive people and resources.
6. Explain your estate objectives. Hearing the words from your own mouth about what you want to accomplish with your estate gives your benefactors and executor clarity and purpose. Guessing at what someone wants when they are dead is fraught with misguided intentions, even if they are good intentions. This grey area is often where conflicts arise within families. If you are clear up front, you release them from an unwinnable guessing exercise and avoid negative feelings of self-worth or wrongdoing.

The post How to talk about your farm succession estate plans appeared first on Country Guide.

When we think of strong leaders we often leap to examples like politicians, sport coaches and the CEOs of large corporations, so it’s little surprise that our ideas of leadership can be mixed in with the skills it takes to manage large groups of employees, or to chair meetings or grab the microphone like a great orator.

On the farm, though, leadership needs to involve even more than that.

When you think of successful farms, the vast majority in Canada have only a few, mostly related members, yet all those farms have great leadership. Their business leaders make great decisions — strategically, thoughtfully and bravely. And although these same farmers may not always be the loudest voices in the community or in their commodity groups, they’re communicating well within their smaller family-based teams and they have strong relationships with suppliers, buyers and advisers.

Which is why, even on the farm, communication skills are increasingly being seen as essential components of leadership.

Being able to engagingly lead a farm business and to clearly articulate your goals can no longer be thought of as just a one-way, top-down process, says Richard Stup, a Pennsylvania-based business leadership expert who works with small businesses, including farms, to develop leadership skills and human resources management.

Business leadership isn’t some trait you inherit or something you mysteriously absorb by living on a farm, says Stup, who grew up on a farm himself and has a masters in agricultural education and a PhD in workforce management.

Nor is it something you get by drinking a magic potion as a kid. Instead, it’s something you work at, Stup says. “Leadership for your farm business is about creating a culture and systems to use resources more efficiently, and of course that takes motivated people.”

In Canada, meanwhile, while taking his MBA at Western University’s Ivey School of Business, Steve Koeckhoven learned leadership skills that he’s been able to bring home to the family farm near Wolseley, Sask., and also to his work off-farm for Agrium in Calgary.

“My experience in agriculture is lifelong, and the MBA has definitely helped me weave my way through my career off-farm and on the farm,” the 34-year-old Koeckhoven says.

In retrospect, he now adds, the most significant lessons he took back to the farm started with learning how essential listening is for problem solving, and how important leading teams is to his own performance.

And there’s another lesson too, he says. “Ninety per cent of leadership is communications.” As with most such programs, the MBA at Ivey required listening to lectures, but the program is also heavily weighted toward group work and case studies. Teams of four or five classmates analyze and develop solutions for each scenario.

Koeckhoven was the lone farmer in a class full of international professionals who came with all sorts of undergraduate degrees and aggressive, go-getter personalities, plus high levels of intelligence.

In that environment, they all had to learn to actively listen to the group. “I got so many insights into ways to attack a problem if I listened to the others in the group.”

On the Koeckhoven family farm, meanwhile, three strong-willed successful men were trying to work together. Steve and younger brother John now farm with their parents, Harry and Anika. Like the MBA case study groups, everyone was trying to have input into everything on the farm, and rarely did they really listen to the others. Voices got louder, more aggressive and at times even ended up in arguments.

Koeckhoven remembers a time when he got a loaded grain truck stuck exactly where his brother had told him not to drive. He hadn’t listened. His mom actually videoed the ensuing crazy interaction and showed them later, trying to make everyone laugh at themselves.

However, her underlying message struck him as he participated in the case study groups: the three Koeckhoven men needed to figure out a better way to work together. To be successful and happy working together, they needed to really listen to each other, instead of pretending to listen, maybe even nodding and all the while thinking of something else.

Create a fearless culture

Whether you want to or not, as a leader you will create a culture on your farm. “When I’m at the farm at my desk, life seems so much simpler, less complicated, than it is when I’m in my office in downtown Calgary,” Koeckhoven says with a sigh. “It’s a good life.”

The Koeckhoven Farms culture is focused on profitability, but family comes first and all parties respect that there’s life outside the farm as well. Koeckhoven says this “just try it” attitude likely comes from his parents immigrating to Canada in the ’80s with three children in tow. They bought a dairy farm in Alberta, even though their experience in Holland was grain farming.

But Harry had understood the economics of supply management and how it made sense financially. “Dad milked his first cow at 40 years old,” says Steve.

Over the next decades, Harry and Anika steadily expanded the herd from 20 to 125 cows and the Koeckhoven kids grew up milking cows, all while also being taught to be curious about things other than farming.

Steve earned his bachelor of commerce in finance from the University of Alberta and only during the last year did he take his electives in agriculture. It was that taste and his parents’ passion for farming that spurred him to switch to agricultural economics to do his masters on cost of production and management of resources, with his first job out of university working as an agricultural consultant with MNP.

At home, Steve and his dad also crunched numbers to see if it made financial sense to fulfil his dad’s dream of grain farming in Canada. The culture of smart, out-of-the-box thinking drove the process.

In the early 2000s they took the plunge, selling the cows, quota and Alberta farmland and buying a farm in southern Saskatchewan. Today they own, crop-share and rent about 5,500 acres.

In addition to themselves and the two brothers working on the farm on holidays, they hire one man in the summer — an agricultural college graduate who is respected by the whole family. Although they pay him over market wages, Steve says hiring the right match for their farm is worth it.

“Leading employees is more than not bossing them around or retention, it’s respecting how much they bring to your farm,” he says.

The next step

Steve says today’s successful farmers need to understand how important engaged people — employees, family owners, suppliers and advisers — are to the continued growth of their business.

He isn’t alone. “I find the 30- to 40-year-olds are a different generation, with a different mindset and have a different approach to business management,” says Stup.

Farmers, like any other business people who produce stuff, tend to be focused on production, he finds, yet he repeats that leading your farm business is actually about creating a culture and systems to use resources more efficiently, and of course that takes communication and motivated people.

If the leaders are disengaged, non-communicative, and don’t care about their employees, that becomes the culture for the business.

To Stup, it’s clear: “If the farmer doesn’t like managing people, doesn’t like building teams, then they need to hire someone who likes managing people.”

“Leadership is all about developing a culture, and leaders set the culture, ” he says.

Your strategy

At the heart of any successful farm today is a base strategy, but it has to be communicated among everyone involved.

Almost all farms have multiple partners, from two spouses to multiple family members to non-family partners, and it’s when there is a lack of cohesion on goals and values that there is almost certain to be conflicts, often leading to lack of motivation or even business failure.

In Saskatchewan, the Koeckhovens’ goal was to build a grain farm that maximized their assets — both labour and physical assets. With the size of their farm and the equipment they have, including one combine and a pull-type sprayer, Steve thinks they’ve reached their point of capital maximization.

Their crop rotation of soybeans, canola, wheat, flax, and various pulses stretches the harvest season, so with some extra-long days, they can get away with one combine and some custom hours. Their pull sprayer isn’t as efficient but the family calculates they are better to hire some custom spraying.

Equipment purchases beyond this point are when returns start bleeding. “We are always trying to maximize capital allocations,” says Steve. “Farmers go broke on equipment.”

The same general goal of maximizing resources applies to expansion of land base, although many factors go into longer-term investment decisions. “At 5,000 to 5,500 acres we are at maximum efficiency,” says Steve. “To expand we’d really have to double to get to that maximum efficiency again.”

He believes your debt-to-equity ratio only looks as good as the market value of your assets. When they bought the farm, they wanted a certain scale and to get it, they took on debt. At $1,000 per acre, they had stretched their return on capital and maxed out their working capital.

With higher land values, rental rates have increased, and so has their risk, says Steve. To mitigate some of this risk they have a crop share agreement for 1,200 acres, which also means they have to share profits, but there is value to shared risk. Paying more for rent is not a good use of working capital, especially when things are tight.

“In bumper years we do pay more but, in years like last year when we have a crop insurance claim, the risk is shared,” says Steve. “I want to protect the downside.”

Keep learning

The move to Saskatchewan also led to another learning opportunity for Steve when he got a chance to work with a new fledgling venture capital business called One Earth Farms. It was an exciting new business model based on better margins with scale based on rented land — much of it from Indian reserves and corporately run.

In the five years he worked for One Earth Farms, it grew to 120,000 acres and over 10,000 head of cattle and Steve learned huge amounts about venture capitalism and the intrinsic value proposition of families owning and operating farms.

One Earth Farms business model was somewhat challenging to overlay on the traditonal large-acre farming models of Western Canada, says Steve. For example, even with a core of schooled and dedicated employees, their model couldn’t achieve the same results that naturally derive out of the commitment of family farms and private ownership.

In addition, the margins in crop farming were often too tight to adequately compensate for the admininstrative standards that had to be met by a farm reporting its results through a publicly traded corporation, such as quarterly audits.

In 2014, One Earth went out of the cropping business and the leadership changed. Eventually the company changed its focus to food companies, brought in new leadership, and Steve moved on. But the venture capital rollercoaster had left him with a broad knowledge of startup business, and he had also earned his Ivey MBA.

He had decided to do his MBA in Ontario rather than closer to home because many of the upper executives at Sprott were Bay Street-based and had done their post-graduate degrees at Western or the University of Toronto. He also wanted to learn about leadership from a diverse, international business group, not from a program heavy with commodity industries or in a room full of farmers.

Steve not only came out of the program with new perspectives and a prestigious degree, he has a group of interesting friends in business he can call on for opinions and ideas from around the world. This group is invaluable, even if he doesn’t leverage it for business deals. “I can pick people’s brains from other industries, other countries,” he says.

Communication pulls succession

One goal of the MBA program was to look at small business planning, with case studies often containing insights into how you should work with family. Showing his dad and brother what he learned with these case studies helped everyone to think about how to do succession planning for their farm.

Steve shared some of the unique ways to get things done and different pathways through problems he had learned at Ivey which might have helped them consider different solutions on how to split assets. With farming’s typical high asset-value/low-cash conundrum, succession planning has its own difficulties compared to other types of business. His experience helped give them the framework and confidence to move forward, and now both the sons own shares in the company with their parents.

But most importantly, they listened to each other’s opinions on what would work and what wouldn’t. “I bet half the problems that families run into with succession start when they want to talk more than they want to listen,” says Steve.

He really enjoyed the challenge of learning how to most effectively communicate during his MBA studies and not just talking for the sake of talking. Half of the grade was for participation, based on quality not quantity. “You have to be prepared to make significant contributions to the topic,” says Steve. “I used to talk more.”

He enjoyed being the lone farmer in the group because the stereotype gave him the advantage. When he arrived in a suit and spoke intelligently, people really listened to him.

Delegate to strengths

Solving the Ivey case studies with all the aggressive, talented people also made Steve realize that not everybody can be in the front seat for every decision, and that each person on the farm has their strengths.

At first the team members, including Steve, were too focused on talking and finding the solution, not listening and managing the process. “Everyone was so keen to find the rabbit, they buried themselves in the details of holes and trails,” he says. “But sometimes you have to pull yourself out of the details to see the solution.”

Through the case study work the professors weren’t necessarily looking to see if students could find a specific right answer. They wanted to see how they thought about a problem and finally came to a consensus around a solution. For example, many of the engineers struggled with trying to understand that sometimes 1+1 = 2 but 1+4-3 also equals 2.

Meanwhile, back on the farm, Dad (Harry) has his fingers in everything but has taken a step back to let his sons make decisions. “Many years ago Dad took CTEAM and TEPAP and I think that helped him learn how to give us the reins to allow us to make mistakes so we can learn,” says Steve.

The family has also looked at allocating the responsibilities for different roles. For example, Steve’s brother John is operationally strong so he does most of the seeding and harvesting recommendations, like what field to seed first and how deep to plant. Steve is more of a numbers guy and works on the accounting and capital allocation.

Divvying up the lead roles put the best person in the front seat for different parts of their business. They still don’t always agree instantly with each other but, Steve notices, sometimes it’s best to listen from the back seat.

– This article was originally published in the December 2017 issue of Country Guide.

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Invariably these tools helped me focus and move ahead or drop an idea that had too many holes in it. And it’s the same with having some numbers in front of me. It always gives me the confidence to plan.

Knowing what’s going on internally with your farm financials should give you peace of mind, especially during times of amplified change like we’re experiencing right now. Stopping first and understanding your position eliminates knee-jerk reactions and generally makes for better conversations with your lenders. Not only is it important to know your farm financial position today, but also how it has evolved over years and how it compares to similar farms.

A few key performance indicators can help you know which areas of your farm would benefit the most from a change. Then you can start crunching the what-if scenarios with confidence, filling out grant forms, getting quotes and reaching out to your lenders.

When considering changes, Mark Verwey, BDO’s national agricultural industry lead based in Portage-la-Prairie, Man., says farmers can start thinking about an opportunity by using their financial statements to calculate a few ratios. “Three key ratios — working capital, debt service and debt to equity ratios — can empower your decision-making and your subsequent negotiations,” he says.

Working capital ratio lets you know if your farm has the resources to meet its current year’s financial obligations. The working capital ratio is current assets divided by current liabilities, with those numbers taken right off your balance sheet. It’s current, short-term, and focused on one production cycle and gives you an idea of what’s available to make an investment.

This is a ratio you need to stay on top of and know what your banker deems as a threshold, says Verwey. “If you notice a problem with your working capital, it’s a short-term problem that can be solved, often with a conversation with your banker,” he says. “Some solutions like selling long-term assets, balloon or bridge financing or even lowering or extending your debt payments could be needed on a short-term basis to help through some tough times.” 

Another important ratio to look at is the debt service ratio which tells you if the farm can generate enough cash flow to meet its annual debt obligations. Basically, the debt service ratio compares cash profits before interest and principal payments to your interest and principal payments that are due in the next year. Generally, lenders like to see the cash profits of an operation exceed the cash obligations by a factor of 1.25 for grain and oilseed farmers. Be aware though that various lenders may calculate this ratio differently, and different sectors have different thresholds, such as for grain and oilseed producers versus dairy farms.

“Some producers who try to pay down their debt quickly may show vulnerability in the debt serving ratio during down production or challenging marketing periods,” says Verwey. “Leave room for some storms.”

Another ratio that may help you focus your thinking about growth is the debt to equity ratio. It can tell you (and your lender) if the farm has enough collateral to cover the debt including both current and longer-term debt. It also tells lenders how much skin you have in the game compared to how much they’ve got in play.

The debt and asset numbers usually come directly from your farm’s financial statements so will be based on the book value of your assets. It’s valuable to also calculate this using fair market value of the assets, and it’s important to look at this over years. If this ratio is on a steady decline, you may have to consider selling productive assets like land or quota.

Comparing these ratios to what they’d look like after you expand/make further investments will help you move from wondering to thinking about an investment. Plus having these numbers on hand when you try to get a loan for the investment will help you be prepared for some questions.

With those three ratios in your pocket, you can get start evaluating your operational financial statement and thinking about potential changes that will improve profitability. Ask yourself, what are the most important decisions you need to make to ensure the success/profitability of your operation? For grain and oilseed farms, contribution margin/commodity can be enlightening. For supply managed farms, direct cost control decisions make a bigger impact so knowing your gross margins/kg for each enterprise can be impactful. By looking at gross margin and contribution ratios over time (at least five years), you can start seeing some trends and gaps.

Before you waste the winter dreaming about a new barn or filling out grant forms for a heat exchanger, start by knowing these ratios for your farm. It’ll give you a strong starting place, helping set up your farm investments for success and more importantly, move you from wondering to thinking.

The post How your farm’s numbers can help guide your dreams appeared first on Country Guide.

Many of us lean on the excuse that we don’t have clarity on whether the kids want the farm. We use it as a reason to not get ready. However, whether a successor comes back home or not doesn’t mean you shouldn’t prepare for inevitable change.

This is a time for you and your spouse to talk about new possibilities and to create a unified platform for when you bring your children into the conversations. Besides, some information gathered together before you start succession discussions will set the process up for success. 

In other words, get your own ducks in line before you start to build a new duck barn.

This preparation is not where you find permanent solutions. Instead, it’s a time to write down information, learn and gather your thoughts. Here are seven specific tasks to help prepare yourself and your farm before transition and retirement planning begins.

1. Family and business chart

Write down who is in your immediate family and who they are married to or living with. Add a brief note about where they currently live, what they do for a living and their children. Make a few notes for yourself about any special needs. This might also be a good time to access and write down how much you’ve helped each of your children already, including paying for education or co-signing loans.

On a separate page write a very general current organizational chart for the farm. Who does what on the farm? Who is in charge of what now?

2. Farm asset catalogue

Simply write down a list of all the farm assets and who owns what legally. Include things like location description. As Andrea De Groot, transition specialist with FCC in Ontario points out, with today’s large farms it’s confusing sometimes which assets are held where.

If you do this on an Excel spreadsheet you can leave blank columns that you will be able to come back to later to fill in fair market value, book value, acquisition date and the associated debt the farm is carrying on those assets. At this stage, it isn’t important yet how much everything is worth, so De Groot recommends just sorting out whose name(s) those assets are under and what percentage they own, although if you’re keen you can fill in some preliminary values as they’ll be useful for your personal net worth statement and can be updated later. 

Although you’re not doing this for your ego, take a moment and think about what your farm looked like when you started. You’ve come a long way, and built lots of capacity to support yourself and help your family be successful. Breathe that in for a moment and let it settle into your bones. It will inspire you to plan well for transition.

3. Personal net worth statement

You are not just your farm. A good place to build that understanding is knowing what is under your name personally. This can include life insurance values, off-farm investments, land, homes, cottages or vehicles held personally. Do either you or your spouse have RRSPs or pension investments? Remember to include debt held personally such as personal credit card balances or personal lines of credit.

This is also where you’d list shares or other farm asset ownership. Make a note of all the things that are held with other people and the ones with debt and assign net value on a percentage of this ownership based on the Farm Asset Catalogue.

4. Review your will. If you don’t have one, get one

The threat of the pandemic has amplified the need for having updated wills. Ensure those with power of attorney and health care proxies are people within your own province, in case of travel restrictions.

The power of attorney document allows for an identified person to keep your farm business operating in case you are incapacitated by for example a coma. I recently helped my family with my mom’s health directives and it was imperative that I could be in person to help my mom navigate our COVID-stretched care system and communicate to my siblings.

Second, keep a copy of your will in a secure place and let a trusted member of your family know where this copy and the original are kept.

“Is the will and power of attorney in a place where a family member can find it?” asks Bryan Huck, BDO’s business transition planner.

Huck also suggests taking a moment to reflect if you have had any conversations with family members about the contents of your will and if your will still serves your current farm and your family.

5. Living budget

Developing fair compensation is one of the greatest transition challenges many farm families face. Although taking stock of how much it costs to live can seem inconsequential after going through the asset base of your farm, it’s imperative for both generations to have a realistic idea of how much it’s costing them to live before talking about transition. You can find many templates for this online or create your own Excel spreadsheet.

Personal draws are not only living costs. You need to add in all the things you’ve put through as farm expenses such as housing, truck leases, meals, cell phones, fuel and utilities. These benefits are non-taxable.

Once you do it, share your budget with your children and challenge them to do a living budget. Whether they’re coming back to the farm or working in the city, this is good financial knowledge. This is also a starting place for your retirement planning.

6. Farm financial health checkup

Dig into the farm’s operational income statements to get a good idea of what your farm is making currently and it’s potential,” says De Groot. “Business viability is the number one challenge I find in every conversation with farm families — the ability to service the debt (debt structure) and turn a consistent profit.”

As a starting point, ask your accountant or banker the following questions:

• What is your farm’s debt servicing capacity?
• What are the five-year trends in overall farm profitability?
• What production areas have the best and worst gross margins?

In other words, what is driving profit and what’s holding it back?

7. Dream big

What do you visualize that your farm will look like in 10 years? Do not get caught up in the details or costs at this point. This is to help you shift your thought process forward toward new goals.

It’s also a time to really think and talk about retirement with your spouse, before you meet with your family to try to get some alignment and respect for independent ideas. “Everyone has different comfort zones and expectations of what fun means, so there has to be some compromise and this takes communication,” says De Groot.

This is figuring out a way for both of you to enjoy the fruits of your labour, so you both need to be open to try new things.

Keep it between you until you align on a few top priorities. It might help to bring in some outside expertise, or at least shop around for some good financial advice, says Huck. “Some financial advisors are great for walking the couple through retirement conversations like this.”

For more information about farm transition planning please contact Bryan Huck, CPA and family enterprise advisor BDO bhuck@bdo.ca. Maggie Van Camp is BDO national agriculture practice development lead, co-founder of Loft32 and CEO of Redcrest Farms Ltd. 

The post Taking stock before your farm succession appeared first on Country Guide.

Successful farms depend on smart, strategic thinking no matter what the structure. However, incorporating forces the use of accrual, not only cash-basis, financial statements and also allows you to bring in additional owners as shareholders and a written shareholders’ agreement.

Also, not all business assets have to be part of the farm corporation. If it makes sense for you, your farm corporation can be an operating company, with assets held personally outside of the corporation. Whatever you do, make sure the legal structure is professionally created with your family’s needs and goals in mind and in consultation with your accountant.

Although there are setup costs and it’ll likely cost you more for your annual tax filing and financial statements, the corporate tax rate is much lower than personal income tax rate in Canada. Depending on your farm’s income and personal draws, the income tax savings of having an incorporated farm can be significant. When you incorporate your farm, you only pay the higher personal income taxes on the income that you withdraw.

As in most farm decisions, it really comes down to cash flow and timing. In general, if you use all the profits from your farm to pay yourself or have an off-farm job that supplements the farm income, it might not make sense to incorporate yet. However, if you have money left over at the end of every year that you want to reinvest in your farm, or have successors in the wings, there are some strong tax reasons to consider incorporating.

The following example shows the tax benefits of incorporating a farm in Alberta, but each province has different tax rates so check with your accountant.In Alberta, if your farm makes an average of $100,000 each year, your personal income tax will be about $28,000. However, if your farm was incorporated and you only need to withdraw $50,000 per year, you would pay $12,500 of personal income tax and the farm corporation would incur income tax at Alberta’s small-business tax rate of 11 per cent, which is $5,500.

David Den Uyl, Tax Senior at BDO Calgary says the funds that would otherwise be used to pay tax (about $10,000 in this example), can be used instead to pay down debt or reinvest in your farm corporation.

Furthermore, as your farm grows and income levels increase, these tax deferrals become more substantial. More income will be taxed at the corporate rate of 11 per cent rather than at personal tax rates which, in Alberta, reaches 48 per cent. “The 11 per cent corporate tax rate applies to the first $500,000 of farm income, so an incorporated farm can grow to a significant size and still pay tax at the low corporate tax rate,” says Den Uyl.

With the corporate tax rates lower than personal tax rates, being incorporated can help shift the mindset from year-end reactive tax avoidance to consistent longer-term business and growth planning. Since farming can be taxed on a cash basis, farmers often pre-buy inputs and assets and defer sales to decrease the amount of personal income that will be taxed that year. Farm corporations can do this as well. 

Furthermore, buying and paying back with money that has been taxed at a lower rate helps expand your farm’s capacity for reinvestment and expansion.

Many farms incorporate as part of their succession planning process, allowing for multiple shareholders and flexibility, including incremental ownership and assigning different types of shares to non-farming or retiring owners. “If you expect you will be transitioning your farm to your children, certain income tax provisions make it easier to transfer the shares of your farm corporation to the next generation than the actual assets themselves,” says Den Uyl. “A farm corporation can also allow you the ability to transition ownership of the farm to the next generation in a tax efficient manner or to simplify your estate for income tax purposes.”

For example, if inventory (such as livestock, feed or crops on hand) is used to operate your farm and is owned personally and you want to transfer it to your children, Canada Revenue Agency requires it to be sold at fair market value and you as the seller will have to pay the resulting income taxes. “If the inventory is in a corporation,” says Den Uyl, “its value is included in the corporate shares which can be transferred to your children at any value between zero and fair market value.”

For more detail, see Incorporating Your Farm Business at bdo.ca. For specific or other tax questions contact BDO’s Agricultural tax trusted advisor Dave Den Uyl at ddenuyl@bdo.ca. Maggie Van Camp is BDO national agriculture practice development lead, co-founder of Loft32 and CEO of Redcrest Farms Ltd.

The post When is a good time to incorporate your farm? appeared first on Country Guide.