Something Bigger – Is the legacy the farm, or the opportunity it provides?
“I’ll just sell the farm”.
Agriculture needs to get out of the past. Farms continue to believe they are something much greater than profitable businesses and a great career path. It has become a shortfall because it is now clouding the judgment of what assets are and how they should be used. It is hurting the next generation.
The quote at the beginning of this blog is the answer to a question that most producers must face. What happens if my child does not want to return to the business? We have created a great place for succession, but let’s be upfront, not every farm kid wants dirt under the fingernails and to live in small town Saskatchewan away from every Costco and Walmart. In fact, I am starting to see the opposite: commutes to the family farm while living in the urban centers. So, what happens when your son or daughter chooses to do something else? We sell. We liquidate a real estate asset that continually appreciates, has a finite amount in the world, and is an inflationary hedge. Easy is not always best.
Entrepreneurs in other industries do not think the same. They use the shares or assets they have to fund investment in diversification. Whether that is stocks, commercial or residential real estate, or whatever businesses they want to own. They use their equity to fund other revenue streams and growth. Why in agriculture do we only think land can fund land? Land is a means to an end in many instances.
The family office in agriculture is becoming real. The large operations are getting ahead in many ways by diversifying outside agriculture. They are building other businesses, they are investing in agriculture and non-agriculture companies, and they are using their equity in other areas. In many geographies today, land purchases are not available or are out of range in terms of price. Rather than staying complacent, get outside the box. The world is much nicer outside the box some days.
The Legacy
A client had a discussion the other day about his non-farming children. One was going into veterinary medicine, and being on a farm with livestock, he felt that was a positive, not a negative. What would happen if the farm invested in a vet clinic? My answer was clear: you would have a full-time vet you didn’t have to find other work for during the year, and you would have an investment in what appears to be a highly profitable business venture. Plus, you provided a legacy.
In agriculture, we are still stuck in the farm being the legacy. The child who comes back becomes the heir to the throne. Whether this is the emotional ties to the land, the family ties to the business, or some mix of the two, I don’t know for sure. But I am going to be clear, the farm can have one child come back and run operations, while also investing in businesses that non-farming children may build outside of agriculture. This is the idea of a family office, and more farms need to start pondering and planning around these opportunities.
The Diversification
Most farms are equity-rich but have trouble paying bills at times. We all knew that getting into agriculture is one of the main reasons that divorces in family farms are rising. Too much value, not enough money to enjoy life.
What if the farm used land to buy a cash-rich business? Would this be a solution to a problem that many operations face? Could the farm then have the cash to create new margins while also being able to continually invest in new land as well as other ventures? Farms are so focused on one business that we forget we are entrepreneurs and can shift or adapt to the environment. It is partially the reason I can sit here and write this blog; I am the diversification that creates cash with very low capital. Four computers and an office rent are easy to swing, and my margins are much higher than most farming operations.
The larger operations are starting to pivot into new businesses. Using the family wealth, equity, and legacy to build something bigger than just acres. They are giving the next generation new opportunities, no matter what business line they want to enter. As parents, we should have the mindset of helping all the children achieve whatever goals they may have, while also motivating them to be great and build something better. The farm is a means to an end, and what that end will be, you must decide.
