Making non-family business transition work

These two families found a way to make a dairy farm transition succeed

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Most farm transitions today happen through succession planning between families, but there are growing examples of how non-farmers are making it work with existing farmers and on their own.

FarmSmart, held at the University of Guelph on Jan. 18, presented opportunities for young individuals who don’t come from a farm to be successful in running one.

Why it matters: Farmers have smaller families than a generation ago so there’s less chance there will be a family successor to take over the farm. Creative solutions are needed and being found.

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Legacy Holsteins, owned by Steve Dolson, Karen Galbraith and Geoff and Sally McMullen, in Atwood, Ont., is a good example.

Karen and Steve bought their dairy farm, Legacy Holsteins in 1985. They continued to invest in the operation to reach their genetic and production goals and ensure the operation was modern if their children wanted to come home and farm.

But neither child had plans to do so.

Karen and Steve were looking to reduce their day-to-day commitment and after their hired man quit, they had three options: continue what they were doing, sell or partner.

They weren’t ready to sell. In 2015, they began looking for someone to take on the day-to-day management and leadership role.

“We gave ourselves one year to find the (individual or couple) that we could partner with or else we would sell,” says Dolson.

Through their succession planning consultant, they met their current partners Sally and Geoff McMullen.

A new barn was part of continuing to grow Legacy Holsteins.
photo: Courtesy Geoff and Sally McMullen

Sally and Geoff both grew up in the city and fell in love with agriculture as they each spent summers on their grandparents’ dairy farms.

As the two couples met for the first time, they laid out their backgrounds, the operation and Karen and Steve’s desire to step back.

“It was stressed from the very start that ownership was necessary and partnership was the goal,” said Sally McMullen.

In the early stages the two couples invested time in getting to know each other, their lifestyles, personalities and goals for the business to understand if it was a good match.

They went as far as building a spreadsheet to understand how shares would differ as the years went on.

As well, they took the time to complete a personality assessment and understand each other’s personalities.

“(We wanted to see if the other persons’) preferences, inherence and styles were something that you had envisioned having in your business and was something that you could live with on a day-to-day basis,” said McMullen.

McMullen says coming into the arrangement as strangers was an advantage.

“(It) gave us the freedom to offer everything at face value, absolutely no filters. If you can’t be completely honest and candid at this stage you can’t hope to get what you want out of the partnership.”

Once everyone was on the same page, they began to look into the numbers and drafted a letter of intent to outline the compensation, living arrangements, investment details and the roles everyone was to play on the farm.

As everyone became comfortable with changes to the letter of intent, both couples brought their advisers together to go over the document.

“The purpose of this was to make sure everyone had a similar understanding of the words on the page,” said McMullen.

From introductions to signing the letters of intent took four to five months as everyone had spent between three and four years prior to that doing succession plan work for other potential opportunities.

The first year of partnership was a probation period to ensure all parties were comfortable with the situation and had opportunities to get into a routine.

Regular meetings were held to help ensure decisions were being made together and that all parties understood what was happening.

“We found our groove and set up reasonable goals to see if we could achieve them together,” says McMullen.

After the first six months, the couples had their mid-year check in.

“We asked each other if there are any issues on the farm that we need to take care of and why? Was everyone feeling important? That was a really important question. Is anyone unhappy? It’s a difficult question to ask, and a difficult question to answer,” says McMullen.

Following their first year anniversary, the buy-in began. Ensuring all parties were happy, they signed a shareholder’s agreement and everyone became an owner.

“Then we started the wheel all over again; having regular meetings focusing on what we are going to learn this year, what we are going to try and achieve,” says McMullen.

The shareholders’ agreement for this operation is a living document containing two types of shares.

Preferred shares: These were frozen for Sally and Geoff from day one and Karen and Steve owned theirs by the equity they have in the business. Geoff and Sally bought a portion of preferred shares with cash.

Common shares: These shares change in value as the farm value changes. They were split from day one at the same ratio as the preferred shares.

The agreement also includes compensation for Sally and Geoff and Karen and Steve.

As well, the agreement contains the “four Ds”, the details in case of death, divorce, disability and disagreement, and the exit process on how to get out of the agreement should it be needed.

“The last two (four Ds and exit process) have to be in every agreement,” says McMullen.

Geoff and Sally say there are many important things to keep in mind to ensure a transition like this is successful:

  • Having a variety of different meetings, weekly check-ins, quarterly financial meetings and annual goal meetings for everyone to understand how things are moving along.
  • Have procedures and write them down. “Standard operating procedures ensure all partners and staff can do tasks the same way continuously,” says Dolson.
  • Establish a budget and measure against it regularly. It empowers the individuals to make decisions on the go within the area of their expertise.
  • Communication is of utmost importance. “Chit chatting while crossing paths and having meetings reveals details about other parts of the operation. You will start to care about each other and will want to know how each other (is doing),” says McMullen.
  • Remember you have common interests. “Even if you disagree, every person wants the best for the livestock, the farm, and each other’s families,” says Dolson.
  • You are a team. You are succeeding or failing together.
  • Lists are important. It keeps work organized and saves time and frustration.
  • “The agreement will require blood, sweat and tears. Persevere. It is all worth it,” says Dolson.

Since the beginning of the transition, Legacy Holsteins was able to build a new facility and move into it in the fall of 2019.

“(The transition) has been a success. We measure that as the business is healthy, the people are working away happily and all of us get to be dairy farmers,” says McMullen.

About the author

Reporter

Jennifer Glenney

Jennifer lives on a farm in Cayuga, Ontario and has a lot of experience in the many aspects of agriculture.

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