Guiding Farm Families through Transition with Darlene Livingston and John Black

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Show Notes

John Black, Farm Credit Agriculture Business Consultant

 

Summary

On this episode, guest host Darlene Livingston, Executive Director from PA Farm Link interviews John Black, Farm Credit Agriculture Business Consultant. John helps farm families tackle the transition process, with expertise in both financial and business planning. This is our first episode in our Farm Transition Planning Podcast Series, where we’ll explore farm family succession planning tips!

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Transcript

Johanna Rohrer:

Welcome back to the AgVocates podcast! I am Johanna Rohrer, Outreach and Educational Program Specialist here at Farm Credit.  We’ve missed you and we have a great surprise to kick-off our winter season in 2022 with something fresh and new. I know that you know we took a break from our regularly scheduled podcast recording to refresh and recharge. Like many of you, we enjoyed our time together and ate way too many cookies to count, but we are back and looking forward to reconnecting with you. 

What’s next for the AgVocates podcast? We are launching our first ever podcast series takeover.

What can you expect? Over the next three episodes, we will be launching one new episode within the series. We encourage you to sign up for our email episode alerts at so you don’t miss an episode.

Let’s get started with our first episode of the Farm Transition Planning podcast series where we’ll explore farm succession planning, business planning, and more. We know this is one of the biggest challenges facing multigenerational farm families; therefore, we have joined forces with our good friends at Pennsylvania Farm Link. We will be joined by Darlene Livingston, who will serve as our guest host for this series.

Darlene, I will kick it over to you to introduce yourself and our first guest.

Darlene and John

Darlene Livingston:

Welcome to the Pennsylvania Farm Link transition planning podcast series, where we'll explore issues of succession planning, business planning and more.

I'm Darlene Livingston, your host. I'm also the Executive Director of Pennsylvania Farm Link and operate a livestock and crop farm with my family in Indiana County. Today's guest is John Black, Ag Business Consultant with Farm Credit. In his role, John helps farm families tackle the transition process and the financial and business planning necessary to help both generations achieve their goals.

 John, thanks for joining me today.

John Black:

Hi Darlene. Thanks for having me.

Darlene Livingston:

Let's start by having you tell us more about yourself and your passion in helping families through the transition process.

John Black:

I grew up on a dairy farm in Blair County. After graduating from Penn State with a degree in Ag Business Management, I returned to the farm where I was a partner for 25 years. After that I spent nearly 20 years doing taxes, 16 of them doing farm taxes. During that time, I also did some analysis work in budgeting and I had the beginnings of helping farmers with their succession planning. At Farm Credit as a business consultant, I help customers with the feasibility studies, budgeting, transition planning, and succession planning.

I think transition planning is such important topic for farmers because a family business can have such an emotional impact on the family structure. It's hard to separate business and family in any kind of family business. It’s especially hard on a family dairy farm because of the long hours put in. The farm is the family's way of life. It's also a lot harder because of the huge capital investment. Things can get pretty emotional and I think that's where I come in. I've seen a variety of different scenarios of a lot of different things that can happen. I can come in as somebody that's not emotional and strictly look at the numbers and situation in a non-emotional manner.

Darlene Livingston:

I'm sure your experience and your expertise is a huge asset to all the farmers you work with. Definitely paramount to success of the farmers.

What do you find are the biggest stumbling blocks for farm families in putting a farm transition plan in place?

Biggest Blocks for Farm Families Putting a Farm Transition in Place

John Black:

Number one is that I always have to look into financial position. It doesn't seem to matter what kind of project I do, whether it's a feasibility study, succession plan or a transition plan; it revolves around finances and frankly what the farm can afford to do. The financial position of the business will largely determine how the transition plan goes. As you know, there's three ways to transition assets; by selling, gifting, and inheriting, and it usually takes a culmination of the three. If a business still has debt, how does that impact the ability to transfer; can the business generate the cash flow to afford a buyout and still provide for all the members? Along with that, it's important to have good financial records so we can help determine what the needs are and what the position is.

Secondly, I think communication is a key stumbling block. Many times it's easier for families to not talk about transition and so the transition never gets done. Farmers are farmers because they like working with animals or they like working on a tractor. They aren't in it for the people skills, so a lot of times they're not very good at communicating with one another. The third thing is the ability to negotiate between partners. When we're talking about a family business, you cannot look only at your own interests. There has to be some kind negotiation involved. I think these are some of the major stumbling blocks I see.

Darlene Livingston:

Excellent points.

For most transitions, there's a senior generation and a junior generation.

Do you typically hear first from the senior generation or junior generation and why do you think that is?

John Black:

I thought about this question a long time and I honestly think it depends on the situation. In my experience, I've had a pretty good balance between the older and younger generation with regards to who is pushing the transition plan. I see a lot in progressive families and the ones that communicate well, that I hear from the older generation first because they're ready to start transferring assets. The elements of farm transfer includes three things; transfer of management, along with transfer of ownership, and then the division to income. Rarely all three of these things happen at the same time. Within those elements, you'll see the transfer of ownership start with animals or machinery, then real estate will be last. It doesn’t all happen at once.

In a progressive family where they're communicating, a lot of time they have already started to take the step with the transfer management. They will be ready to go to the next step, so I'll hear from the older generation first. Now in a family that's never communicated well, none of this has happened, so I will hear from the younger generation first.  When talking about the younger generation, we are talking about people in their forties or even fifties where the transition of the farm hasn't taken place. The younger generation are the ones that contact me because they want to get mom and dad moving and nothing's happened yet. I really think it depends on the situation of who I hear from first.

Darlene Livingston:

Let's hone in on the senior generation.

What are some key considerations to ensure the senior generation's needs are met?

Key Considerations to Make Sure the Senior Generation's Needs are met

John Black:

Most importantly start early. I think that finances are a key to this with the evaluation of farm business as farm business assets - what can your business afford to do and still provide an income for the remaining people in the operation. Another key consideration for the senior generation is, have they looked at their social security check statement lately. I realize that we all hear the bad things about social security and we can't rely on that to provide for our retirements. In reality, the social security benefits are the basis and cornerstone of our retirements. If you haven't looked at it in a long time, it’s a good place to start. Looking at it helps to determine if you have time to build social security if you don't have enough income for new future? It also helps to determine if you are still young enough to be able to bump up your income a little bit through the next few years, as you get closer to retirement.

Another big decision is when is the best time to take social security? If we take it before our full retirement age, we're going to have reduced benefits. You can start taking social security at age 62, but that benefit is going to be 30% less than what it is in full retirement. There are also income limitations involved with that. On the other side of it, if you wait until you're 70, your benefits will go up about 8% a year from the time you reach retirement age until 70. For someone that is at full retirement at age 67, if they had wait until they are 70, they could see a 25% boost in their social security income.

Besides social security, we start looking at other non-farm assets, such as IRAs and pensions from an outside job. My main goal is to make sure the senior generation is comfortable and have what they need to provide for their needs in retirement.  I also take a look at life insurance to see what the possible payout is for family members.  I think a key consideration that we always want to look at is treatment of farm and non-farm heirs. I adhere to the rule that, equal isn't fair and fair is not equal. I think most parents, and as a parent of grown children myself, I certainly want to leave non-farm heirs with something too. It’s important that we provide for all of them. Those are some of the key considerations I have for the senior generation.

Darlene Livingston:

I think those are excellent points.  It does show that it is a complex topic, even within each generation and their needs. Now that we've talked about the senior generation, let's focus on the junior generation.

What recommendations do you have for the younger folks to not only ensure a smooth transition, but to have a viable business?

Recommendations for the Younger Generation 

John Black:

One of the keys is to start early.  A young person has enthusiasm and the work ethic to get things done. Don't wait until you're over the hill and don't have the effort it takes. Young people should not be afraid to take the mantle. You need to take on responsibility to show that you're ready to take on ownership of the farm. As we talk about farm transition, the ability to take on responsibility and take on management decisions is a key part of the transition process.

I think the younger generation need to exhibit strong and personal financial health. They need to keep their personal debt low and save to invest as a buy-in to the business. They need to also demonstrate financial responsibility. Are you buying a lot of high price toys? Are you taking lavish vacations? Do you have frivolous spending? Be careful of all this stuff because the senior generation is watching. They want to see that you're responsible. Financial responsibility also improves your borrowing capacity in case you need to borrow money to facilitate a buyout.

Another key thing with the younger generation is to be willing to communicate. Communication is key no matter what we're doing in this transition. Not only with the family members, but also your spouse who is not involved in the business itself. Those are some of the key considerations for the younger generation.

Darlene Livingston:

Farm transitions, aren't only about succession planning, sometimes we see farms transition to different enterprises.

How do you suggest farm families approach such changes?

Farms Transitioning to Different Enterprises

John Black:

Above and beyond everything, do your homework. A lot of times we're talking about a value added enterprise to complement existing enterprises. For instance a dairy farm could take on processing equipment and cheese making will become an enterprise. Other times, it’s something new that we don't have a lot of experience with. In either case you need to get a business plan. Get a team of experts to help educate you in all aspects you're not sure of or to make sure you're aware of roadblocks you haven't thought of down the road. We may be familiar with what we're doing, but this is our uncharted territory and we're going to come across things that we have not thought of. You want to make sure that you have budgets done for financing and that you have a business plan that covers all aspects of this.  Working with a team of experts will bring a lot of things to the table that you maybe have not thought of.

Darlene Livingston:

As a part of our podcast series, we are asking all of our guests a sign off question.

What is the one piece of advice farm families should remember while embarking on a family farm transition?

John Black:

Start early. A successful plan doesn't happen overnight. It takes careful thought and consideration that evolves over time. Involve everyone with the business, have annual family meetings, discuss financial performance and get the younger generation involved in finances early. I encourage everybody to work with a team of consultants or a team of advisors to help them through the process. Set your smart goals and complete a written plan. Finally, take that plan and review it to make sure you're on track with your goals. Be willing to make adjustments with your plan. The plan isn't rigid because life changes, so your plan has to change as well.

Darlene Livingston:

Great advice.

Thanks for sharing your perspective with us today on the podcast.

John Black:

Thank you very much for having me.

Johanna Rohrer:

Thanks for hosting Darlene. To learn more about mission of Pennsylvania Farm Link, visit pafarmlink.org.

Remember to check out our next podcast episode in the series, where we'll interview Marlin Hartzler, a crop and hog farmer from Belleville, Pennsylvania. Marlin will reflect on his farm transition and share his perspective with us on the next episode.

Remember to rate, review, subscribe, and share this podcast with a friend. To get show notes and to subscribe to email alerts, visit mafc.com/podcast. If you have a topic or guest suggestion, you can email us at  podcast@mafc.com.