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Grow Before You Let Go?Modernization can boost
retirement security, |
JOSEPH KURTZ
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"If you are looking at buying a business, you are likely to want one that's modern, efficient, profitable, and of a size that will provide you with a desirable standard of living and quality of life. And a business that's worth more to you as a buyer is worth more to the seller." Tim McNamara's analysis certainly applies to young people interested in buying a dairy business from a producer approaching retirement. McNamara is vice president of AgStar Financial Services Dairy Business Group. "The numbers tell us that the dairy industry in Minnesota is shrinking," says McNamara. "I believe one reason for this is that young people who have grown up on the farm are not being given the opportunity to buy into a viable, thriving business." Minnesota has a generation of dairy producers at or close to retirement. "If these producers are willing to make investments that will enhance the attractiveness of their businesses, it will create more demand for the businesses," says McNamara. "That will make it more likely that their retirement cash flow will be more sustainable." A 60-year-old producer may question the wisdom of modernizing. "If I'm that producer, it could be the wisest investment I could make because I could increase the value of the business," says McNamara. Many producers look to cash from the sale of their dairy business to provide retirement. "If you enhance the value of the business, you enhance the value of the revenue stream created by the business," says McNamara. Making
the Transition "Geneva and I came to the point where we knew we couldn't dairy without help," Stan recalls. "I didn't have enough land to be a crop farmer, and that really wasn't my first love - dairy was. I was also getting more involved in dairy boards, which required time away from the farm." The Diers children include daughters Julie and Linda and sons Phillip and Alan. Linda majored in agricultural education at the University of Minnesota. In 1990 she married Sean Groos, who had grown up on a South Dakota farm and was working with a dairy processing plant in New York. The couple moved to Minnesota in 1991. Linda took a job teaching adult farm management, and Sean began selling feed. They both wanted to get back into farming. "I had a very positive experience growing up on the farm," Linda says. "I knew the farm was where I wanted to live and raise a family someday." In 1992 Sean and Linda bought some heifers. They also had a FINPACK financial analysis run to see how many cows they would need to support both their family and Linda's parents. They decided to double the number of cows and youngstock and build an 88-foot by 120-foot curtained freestall barn with 108 stalls and an alley for drive-through feeding. 50-50 Partnership Stan, who was without debt before joining the partnership, paid for the construction of the freestall barn. "I was able to borrow the money - the partnership didn't have that kind of equity," he says. "Then I received a monthly lease payment on the barn from the partnership." The partnership bought equipment needed to feed a total mixed ration. Stan and Geneva retained ownership of the land and the crop machinery. They received a monthly payment for the corn silage and haylage produced on the farm that covered out-of-pocket crop production expenses, but not labor, since Stan and Sean both worked on crop production. For two years, cows were milked in shifts in the 44-stall tie-stall barn. In June 1995 the partners remodeled the barn into a holding area and a step-up flat barn milking parlor with eight stalls. They also bought used milking equipment for about a quarter of the price of new equipment. In 1994 Stan's parents moved to town, Stan and Geneva moved into the house where his parents had lived, and Sean, Linda, and their daughter, Rebecca, moved into the main house. "It was just a miracle the way it fell into place," says Stan. "My parents were getting to the point where the house was too much to care for. They needed to go to an apartment - it was their decision. Sean and Linda were ready to come to the bigger house. Nobody felt pushed out." Rebecca was joined by brothers Ethan in 1995 and Luke in 1998, and baby sister Bethany in 2001. Geneva died of cancer in 1998. Stan has since remarried, and he and his wife, Sharon, have built a new house on the farm. Full Share The farm is now called Minkota Holsteins. The number of cows milked has gradually increased to about 140 head, with a herd milk production average of 25,000 pounds. Sean and Linda now own all the livestock and livestock equipment. Sean, outside the partnership, has purchased most of Stan's tillage machinery. Stan continues to own the freestall barn and half of the farmland. Geneva's half of the farmland is in trust to Stan and Geneva's four children, and Stan rents that half from the trust. Is Stan better off now than if he had just sold the cows and quit milking in 1993? "Very much so," he says. "My equity is far greater now than when the partnership began. There's no way I could have accumulated as much by crop farming. And I couldn't have dairied on my own. I wouldn't have been one to build a new dairy and run it with hired help." Keys to
Success Linda says a low debt load has contributed to the success of the partnership. "A high debt load will keep dragging you down," she notes. Sean says he has seen father-son partnerships where "the dad just doesn't want to let go." "The senior partner has to learn that to make it work he's going to have to make changes," Sean adds. "Otherwise, the younger partner will get frustrated and look for another way to make a living." McNamara recommends that families looking at setting up a partnership seek experienced, professional legal and tax advice. "The warning, 'Don't try this at home,' applies," he says. McNamara says he sometimes hears doom and gloom about the future of dairying in Minnesota. "It doesn't have to be that way," he says. "We have the knowledge, ability, resources, and experience to revitalize Minnesota's dairy industry. Transferring a dairy business as a going concern, rather than dismantling the business and selling the assets, can contribute to that revitalization." |
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