1. Family Farms: Tips for working together The Vermont Grazing Conference Annual conferenceSaturday, January 17, 2009

2. Goals for today Overview of family businessworking with family Farm family businesses Succession = working together Family Farms: Tips for Working Together 3. Quiz What is a family business? 4. Definition of a family business? Business employs at least one family member as owner or partner; The family controls ownership and / or decision-making power; Future plans consider succession of the business to the next generation.Succession Checklist 5. What is a farm? U.S. Census - any establishment which produced and sold $1,000 or more of agricultural products during the year. Just over 2.1 million farms in the United States. Average farm family exceeds $47,000 per year needed for basic living. Less than 1 in 4 of the farms produce gross revenues in excess of $50,000.Family Farms:Tips for Working Together 6. What is a family farm? 1997 Census of Agriculture 90% are owned and operated by individuals or families. 6% are partnerships Corporate farms account for 3% of farm 90% of those are family owned. However, the term family farm does not necessarily equate with small farm Family Farms:Tips for Working Together 7. Farm type distributionType of farm Number of farms Percent of farms Non-Family Farms 42,3002.0Farming Sales > $500,000 61,3003.0Farming Sales $250,000 - $499,99991,9004.5Limited Resource 150,300 7.3Farming Sales $100,000 - $249,999171,500 8.3Retirement 290,90014.1Farming Sales < $100,000 422,20020.4Residential/Lifestyle834,30040.4TOTAL 2,064,700 100.0 Family Farms: Tips for Working Together 8. The Three Circle ModelBusinessFamilyOwnership Succession Checklist 9. Pop Quiz Is a family farm (choose one) A business A lifestyle A legacy All of the above? Succession Checklist 10. The Blurry circle model BusinessFamily OwnershipFamily Farms:Tips for Working Together 11. 2007 Family Business survey Nearly 60 percent of majority shareownersin family businesses are 55 or older Nearly 30 percent are 65 or older Less than 30 percent have successionplans Fewer than 40 percent have a successorin line and are preparing for the transition. Source: Family to Family: The Laird Norton Tyee Family Business Survey 2007 (www.familybusinesssurvey.com)Succession Checklist 12. Farming succession 30% of U.S. farm families have not discussed the issue with family members 40% of the farmers in this country are 55 years old or older (Bureau of Labor Statistics).Family Farms:Tips for Working Together 13. 2007 Family Business surveyNearly 95 percent of respondents indicatethat they manage their family-ownedenterprise like they would any otherbusiness, but the numbers say otherwise. Only 56 percent have a written strategicplan and less than 30 percent have awritten succession plan. Source: Family to Family: The Laird Norton Tyee Family Business Survey 2007Succession Checklist 14. Iowa State survey of farmers 50% had no estate plan 71% had no named successor 20% HAD spoken to a banker 30% HAD spoken to an accountant 28% HAD spoken to an attorneyFamily Farms:Tips for Working Together 15. Family Business Facts More than 30% of all family owned businesses survive into the second generation 12% will still be viable into the third generation Only 3% of all family businesses survive into the fourth generation level and beyond Succession Checklist 16. Most importantfarm transfer issues Clear goals and communication Transfer strategies Assessing financial strength Understanding tax issues Wills, trusts & estate planning issues Life insurance, power of attorney & health care issuesFamily Farms:Tips for Working Together 17. Why do family businesses fail? Inadequate estate planning; Failure to properly prepare and provide; for the transition to the next generation; Lack of funds to pay estate taxes: In 47.7% of family business failures,the transition and ultimate collapse of the firm was precipitated by the founders death.Succession Checklist 18. Why Prepare? Succession faces all businesses and owners If you do not plan, someone will do it for you Provides for (a semblance of) continuity despite unforeseen circumstances. Succession Checklist 19. If you learn only two things today 1. START NOW! Succession planning is important at everystage of the business. 2. INVOLVE OTHERS Family; Stakeholders; Professionals. Succession Checklist 20. SMART Goals S Specific M Measurable A Attainable R Realistic T TimelySuccession Checklist 21. 1. Goals - Owner Time line; When would you like to leave? Financial; How would you like to leave the business? Lifestyle; What will you do? Manage the plan. Succession Checklist 22. 2. Goals Key Stakeholders Family members: In business Out of business Partners/investors; Employees; Others. Customers CommunitySuccession Checklist 23. 3. Clearly define stage of businessas it relates to owners exit goals Early stage Survival: Owner - entrepreneur Not yet profitable but perhaps saleable Growth: Growing rapidly Succession plan as contingency, added value Mature: Stable cash flow Positioned in market Succession Checklist 24. 4. Business Valuation The valuation is only as good as the information and cooperation that you provide to the analyst; Choose an accredited valuation analyst; don't have Uncle Bob do this; it's too important; Cost - $5,000 - $10,000 depending on the level of analysis and nature of report (oral, limited, comprehensive); Time to complete - from the time you make the first call to an analyst to the time you get a completed report - 4 - 8 weeks; most of this time is spent collecting information. Succession Checklist 25. 5. Communicate Professional advisors: Financial Legal Personal Family meetings Frequent or at least regularly scheduled Off farm or non-working Non-family advice & peers BOA BOD Education Non-technical Strategic Succession Checklist 26. 6. Explore succession options Keep in family: Buy-sell agreements Gifting Trusts Outright sale: Third party Liquidation Internal sale: Management buy out Employees (ESOP or CO-OP) PartnersSuccession Checklist 27. 7. Have a contingency plan! Death Disability Loss of business value Failure to secure sound management or transition team.Succession Checklist 28. 8. Identify successor (s) & future management Key positions Tools needed to succeed Develop skills Provide time and space.Succession Checklist 29. 9. Develop & manage actual plan Written & documented Stick to goals and time line Share with others Family Employees Stakeholders. Succession Checklist 30. 10. EXIT!!! LEAVE!!! RUN AWAY!!! Truly let go! Let others succeed; Do you have a plan for all your free time? Or perhaps. Succession Checklist 31. start a new business! Succession Checklist 32. Advice from a family farmer The time to start the process in not in your 70s or 80s Open communication conflict is OK! Dont rule out the youngsters Buy and pay off a long term care policy Emulate the career tracks of Amish farmers Farm form teens to mid-40s. Take on less taxing career of teaching or craftingFamily Farms:Tips for Working Together 33. FINAL EXAM 34. If you have learnedonly two things today: 1. START NOW! Succession planning is important at everystage. 2. INVOLVE OTHERS Family; Stakeholders; Professionals. Succession Checklist 35. Lessons learned Farm business transfer, estate planning & elder law are very complicated Laws change frequently so up-to-date information is critical Working with professionals is critical Pick those who understand ag-business This all takes time, effort and emotionFamily Farms: Tips for Working Together 36. What is the Vermont Family Business Initiative? Founded in 1998 in the UVM Business School. Provides a series of family business forums throughout the state. Currently 30+ member business in Vermont, from Bennington to Newport. Family owned and closely held. Farms welcomeSuccession Checklist 37. Contributing partners Gallagher, Flynn & Company Greg Bourgea, CPA Gravel and Shea Margi Montgomery, Esq. Northfield Savings Bank Tim Ross, CFO Fleischer Jacobs Group Tim Cope Succession Checklist 38. Additional resources: http://uvm.edu/familybusiness Click on RESOURCES National Farm Transition Network http://www.farmtransition.org/ 2007 Family Business Survey www.familybusinesssurvey.com Family Business Wiki http://www.familybusinesswiki.org Succession Checklist 39. Questions? Deb Heleba UVM Extension 802-656-4046 Debra.heleba@uvm.edu Daniel Van Der Vliet - Director 802-656-5897 daniel.vdv@uvm.eduSuccession Checklist