Edition #16

October 21, 2023

Good morning and welcome to the Braintrust Ag newsletter. Your cure to being bored so you don’t spend your Saturday doing these kinds of shenanigans…

A few notes to begin:

• Next virtual meet-up (aka SOIL Gathering) is 10/26 at 7:30 CST. Topic = TBD!

  • So, if you have a burning desire to talk about something in particular, let me know.

• If you’re on X (formerly, Twitter) listen in to the Noon(er) Chat w/ Bridgette this coming Friday. I’ll be chatting with her on all things farm business transition & estate planning.

• Heard a cool story of a couple members meeting within the community and they’re planning to tour each other’s ranches this winter. The internet’s pretty great when used properly...

Alright, let’s get to the topics that will help you build a strong, sustainable agri-business.

-Clint

Here’s what we have this week:

• 👨‍👨‍👧‍👦 Whole Farm Planning

• 📜 LLC Operating Agreements

• 🌱 Seeds

• 💲 FSA Loan Types

• 🛠 Resources

• and more…

PLANNING: A “Whole Farm” Approach

Comprehensive planning is crucial for farm businesses because it ensures proactive management, addresses the unique challenges of agriculture, and lays a foundation for long-term sustainability and success.

But, it’s more than a simple business plan. Farm and ranch businesses combine the universal challenges of business with the complexities of family relationships, rural values, and “asset heavy, cash poor” models.

So let’s take a look at how to approach the various planning needs of a family farm and ranch business. We’ll begin with identifying some key components that span across the various planning areas.

The Farm Family

The family unit is central to agricultural businesses, and understanding its history, values, and goals is crucial. Reflection on past experiences, both successful and disappointing, can provide valuable lessons.

It's also essential to understand the impact of all family members, even those not actively involved in operations, as their roles and relationships significantly affect decision-making and business dynamics.

Individual Assessment

There is no uniform skill set for agriculture careers, so each family member should self-assess their abilities in areas like communication, financial management, production, marketing, and general management.

Recognizing these skills helps determine how each person can contribute best to the farm's operation, promoting efficiency and harmony.

Business Analysis

This involves a thorough review of the current state of the farm, assessing available resources such as land, labor, capital, and management.

It requires understanding the business's physical, fiscal, and personnel status and identifying any underutilized resources. External influences that could impact the business, including political, economic, environmental, social, or technological factors, should also be considered.

Mission Statement

After analysis, a mission statement should be formulated, defining the farm's fundamental purpose and reflecting the family business's underlying values, goals, and purposes.

Developing Five Essential Plans

There’s significant interconnectedness of the various whole farm planning areas, and we ought to develop comprehensive strategies in each of these areas:

1. Business Plan: Beyond production decisions, this plan encompasses financial, marketing, personnel, and risk-management strategies. A recommended tool is the SWOT analysis, which evaluates the business's strengths, weaknesses, opportunities, and threats.

2. Retirement Plan: This strategy considers the financial needs of each family member in retirement, emphasizing the importance of early planning and the farm's profitability in meeting these future obligations.

3. Transition Plan: Focused on the farm's longevity, this plan outlines how to transfer business assets and managerial control across generations, ensuring the farm's continued success and accommodating all heirs in the process.

4. Estate Plan: This involves determining how farm assets will be distributed upon the death of the principal operator(s), with considerations for potential tax implications.

5. Investment Plan: Besides traditional investments in land, machinery, and livestock, farm families are encouraged to diversify with off-farm investments, considering factors like return rates, risk tolerance, tax implications, and investment timelines.

To summarize, proactive and comprehensive planning will help secure the future success of farm businesses. Through the whole farm planning approach, these businesses can face future challenges confidently.

This summary and upcoming series was inspired by this article from Ohio State University.

Over the coming weeks, we’ll explore each of these planning areas to help provide tools and insight to help farm and ranch families build better businesses.

SEEDS

• 🌎 Foreign Farmland: Syngenta, owned by a Chinese corporation, was ordered to sell a quarter of ground in Arkansas as the first action taken by that state after the governor signed a bill banning prohibited foreign entities from owning Arkansas farmland.

• 🍊 Citrus Crops: Saltwater coming up the Mississippi River from the Gulf is threatening Louisiana’s citrus crops. Farmers are having to redesign nurseries to avoid using the saltwater for irrigation.

• 🤖 Tech Tactics: This article dives into how to evaluate the tech needs for your operation since today’s ag tech is ever changing and growing in popularity, cost, and functionality.

• ⚰ Last Lease: Learn the considerations of what happens when there’s an unharvested crop and the landlord or farmer dies in a crop-share lease. Who gets what?

• 📜 ROFR: A brief discussion of Right of First Refusals and how they could help protect your leased ground… with an incredibly average contributor (yours truly).

RESOURCES UPDATE

A handful of resources available for download I’d like to highlight:

Farm Business Entities Guide

This comprehensive, 324 page eBook is chock full of helpful information to help you determine if a partnership, corporation, limited liability company, or some other entity is right for you. It also has example agreements and step by step checklists and instructions.

Located: Resources > eBooks > Farm Business Entities Guide

Farmland Proforma

A detailed spreadsheet to help evaluate the purchase of farmground from a cash-rent perspective. It will account for investment costs, debt payments, and future cash flows to give you ROI.

Located: Resources > Buying & Leasing Farmland > Cash Rent Proforma

Keeping Farmland In The Family

This publication outlines the risks commonly faced for family farms keeping land within the family and presents legal strategies and tools to help prevent the loss.

Located: Resources > Succession/Transition > Risks and Strategies For Farmland

LLC Operating Agreement

A limited liability company (LLC) is a common farm business entity. One of the components of a successful LLC is the Operating Agreement. This is the document the members (owners) sign that governs how the LLC functions and all the rights and responsibilities of the various parties.

Below is a checklist to get you started thinking about how to structure your Operating Agreement.

One way of thinking about all the issues on this checklist is to imagine the worst-case scenario and then figure out how you’d want each scenario to be handled.

Financial Matters

• What is everyone contributing to the business, financially?

• How are profits and losses handled?

• When is the decision made and who decides whether to hand out or “distribute” profits to the members?

Management Matters

• Who makes the day-to-day decisions (i.e. will the LLC be manager-managed or member-managed)?

• What is the protocol for making day-to-day decisions?

• Are there any particular roles, responsibilities, or benefits of any members or managers you want to specify?

Meetings and Voting Matters

• Will you have an annual meeting and, if so, when?

• How are members informed about the time and place of meetings and how meetings can be conducted?

• Who has voting rights and upon what are they based?

“Big” Decisions

• Will you allow additional members and, if so, who decides?

• What happens if a member wants to leave or if a member’s interest in the company is somehow passed on to someone else?

• Who decides whether the company takes on debt?

• Who decides whether to close the company?

• Who decides whether existing members can make additional capital contributions?

• Who decides on amendments to the operating agreement?

• Who decides whether the company can change hands (i.e. be acquired or merged with another company)?

• How are all other “big” decisions (i.e. non day-to-day decisions) made?

The purpose of this checklist is to think about these matters before they happen. The more you think about them now, the more your unique interests will be protected.

The next step is to bring all these wishes to your attorney to begin drafting your LLC’s Operating Agreement.

ESP SPOTLIGHT

Endorsed Service Providers are pivotal to the Braintrust Ag community. These industry experts know their professional services niche and how they directly impact farmers, ranchers, and other ag business owners.

This week, I’d like to direct your attention to ESP, James Upton with Upton Accounting.

If you’d like to learn more about the ESP program, click here.

FINANCE

I was talking with a young farmer earlier this week and he was asking about buying his dad’s farm acreage. I mentioned Farm Service Agency loans as an option, and we discussed the various FSA loan programs.

The gist on FSA loans is they’re high hassle factor with incredibly beneficial terms. Especially for beginning farmers and ranchers.

Here’s an overview of the loan programs:

These charts were pulled from this 83 page Farm Loans Booklet put out by USDA/FSA.

MEME OF THE WEEK

That’s a wrap, folks.

Until next week, thank you to everyone involved in ag. Come engage on the new platform & let’s grow profitable ag businesses together.

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DISCLAIMER: All content, communications, and resources provided by Braintrust Ag, its principals, operators, or members is intended to merely be educational and entertaining. Nothing published by Braintrust Ag should be relied on as legal, financial, investment, or other professional advice. Investments and legal matters involve substantial risk and are not suitable for all individuals. It is recommended to enter into a client relationship with an ESP for obtaining professional advice.