Part 4: Financial disagreements between farm siblings

Brothers Eric and Matt** farm together and are financially dependent on the farm as their main source of income. Years of drought have left the farm financially unpredictable and with tight margins.

While they have both invested capital in the farm over the years, the two brothers have never really agreed on the farm’s financial priorities, and the external pressures of market fluctuations and ongoing weather challenges are creating more tension between them.

Eric would like to invest in new equipment and upgrade technology to keep the farm running, while Matt feels they should prioritize maintaining cash flow. Day-to-day management discussions have become increasingly challenging since the brothers can’t agree on how finances should be managed or invested, and their disagreements are beginning to affect their relationship and overall family dynamics.

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Financial stress and interdependence

Darrell Wade, founder of Farm Life Financial Planning Group and a farm succession specialist, has a few suggestions for how the brothers can manage this tense sibling situation.

“A farm is the perfect place to combine personal and professional relationships,” he says. “It works if everyone is aligned, but it can be hard if they’re not. And harder still when schedules, finances and lifestyles are deeply intertwined with the farm.”

The first thing Wade says these brothers need to do is complete some business planning exercises.

“Starting with a vision (the why), they need to ask themselves what they are trying to achieve and how they measure success,” Wade says. “Then work through the tougher questions such as how to balance reinvestment in the business along with personal needs for income.”

He also recommends that they complete a SWOT (strengths, weaknesses, opportunities, threats) analysis to determine what’s working, what’s not, and to identify the opportunities and risks to the business.

“I often find approaching this analysis as a self-assessment exercise first can help farmers recognize where they should be investing their resources, both time and money,” says Wade.

He says that no matter who you’re farming with, every farm business should have a formal agreement that outlines ownership, financial contributions and an exit strategy, such as a buyout clause. Written agreements should be developed for key aspects such as profit-sharing, land use or succession plans.

“I recommend involving a professional consultant to help these brothers develop these key legal agreements,” he says.

When it comes to managing farm finances, Wade says it’s important for farm partners to secure individual financial protection and to keep their personal finances separate from the farm finances.

“The farm business should maintain a separate bank account to prevent personal assets from being entangled in farm debts or disputes,” Wade says. “Siblings should all have access to financial records for transparency, to reduce the risk of one sibling controlling or mismanaging funds.

“The brothers should also be sure to protect themselves against debt risks. I advise against siblings co-signing loans unless their ownership stakes are proportional.”

Instead, Wade recommends farm siblings structure loans to reflect individual contributions or use farm assets as collateral. He says that they should consult a financial advisor to create a debt management plan that protects individual investments.

In the next instalment of this series, we look at the case of three siblings who work together on the family dairy farm. The two youngest, Jessie and Cam, have recently returned to the farm and both are full of new ideas they’ve picked up from their college experiences and from working off the farm. They are pushing to implement new practices and technology in the operation. Josh, who’s already been working alongside their dad for 10 years, is reluctant to entertain new ideas and generally resistant to change. This situation has created a divide in the family, especially with Josh, who feels his experience and vision for the farm is undervalued.

Watch for it in February.

** This family and case study are fictional.