– Dr. Roy Burris, Beef Extension Professor, University of Kentucky
After more than forty years of visiting farms, I still cringe when folks describe their farming operation as a “family” business. That’s the way it should be and there’s no better place to raise a family, but I still find that statement “cringe worthy”. It’s because family is family and Business is Business! A family business may have to ultimately decide whether it is a family or a business. And sadly, business principles usually win out. I’ve seen that too many times.
Dave Pratt, a ranch management consultant, says that we have only three choices in any business: (1) We can be profitable, (2) We can subsidize the business, or (3) We can go out of business (bankruptcy). Many family farms choose the second option until they are sometimes forced into the third one. Any business needs to be profitable and all family members or employees need to work toward that goal.
I was on a recent farm visit when I suddenly realized that I had been there before – many years before. This farm had been the home of a herd of registered cattle and its owner was also a seemingly successful businessman – a family business. The family business consisted of the father and his two grown children. The father was so proud of his cattle that, on that particular farm visit some thirty years ago, after we had left the farm he turned around and went back. There standing in the fence row under some trees was the lone cow that he had forgotten to show me. And last week I was standing in that exact spot again.
I inquired about the history of this particular farm. It seems that the past owner had lost his farm and business because of bad business practices by the family. The same business practices that would never be acceptable in a normal business yet are frequently seen as normal in a “family” business. Things like unchecked spending, taking money out of the till, operating without a real plan, bad habits and, perhaps, a sense of entitlement. Communication would seem to be easy but it is generally a problem. Accountability is also lacking. The loss of a family business is very traumatic to the entire family, especially those family businesses and farms that have been held for several generations. Bankers have a saying that money lasts for three generations – the first one makes it, the second saves it and the third spends it. That’s not always true but it does shed some light on how difficult it is to pass farms and wealth to subsequent generations.
Sometimes the third or fourth generation may feel entitled and not realize how difficult it can be to hold everything together. Young folks might benefit from working elsewhere and becoming successful in their own right before rejoining the family operation. Some people are just lazy – like “Ralph”. His brothers caught him napping and told him that he had just won five dollars for being the laziest man in the county! Ralph said “just roll me over and put it in my back pocket”. Would a real business keep a “Ralph” as an employee? What about family?
The most important piece of equipment in a family business may be the kitchen table. Sit down frequently and talk about what each family member’s goals are. Then develop a mission statement and vision statement that is shared by all parties. Have a clear vision of each person’s responsibilities – too many cooks spoil the stew. Someone has to be in charge. That position is usually held by the parent until they choose to give it up. A succession plan for retirement and death is a good idea but most people don’t want to talk about it. If the younger generation is going to plan for the future, those things need to be ironed out. Don’t wait until you die and leave your family with a legal mess.
Many family farms that had been held for several generations were lost in the farm crisis of 1981. Take the time and make the effort to be sure that you are not the generation that loses your family business. Obtain legal and financial advice from experts and keep your affairs in order. Operate your family farm as a real business. This tax season is a good time to review your operation. Do it for your family.