FARM BUSINESS STRUCTURE

FARM BUSINESS STRUCTURE TRANSITION & COLLABORATION

“Multi Generational Business Models”

“FUN GROUP” COLLABORATION TEAM

AGENDA

Strategic Vision …. WHY

Communication Dynamics and Issues

Collaboration and Transition Similarities

Business Structure Designs Considerations

Your Business….. DNA

Discovery Now Actionto VISION

Legacy Planning for Your Farm?

•Transition Planning Current?30% of family-owned businesses survive into the second generation

12% of family-owned businesses survive into the third generation

3% survive into a fourth generation and beyond • Source; Family Business Institute,

Strategic VisionPeople First ( Same Core Values “The WHY” )• Where have we been?• Where are we now? • Where do we want to go? (The Perfect World?)

“ Where are we going?”“How will we get there?”“Who will we work with?”“Identify opportunities and challenges?”“ Exit Strategy and Contingency plans?”

What’s the Exit Strategy ???

COLLABORATION HAPPENS TO EVERYONE = OPPERTUNITIES !!

THE QUESTION IS : “TO WHAT DEGREE?”

Family transition Neighbor retire or transition Employees working into operations Suppliers Customers Investors / Lenders Other Businesses / Organizations Peer Advisory Board / Peer Group

WHY STRUCTURE IS IMPORTANT FOR TRANSITION & COLLABORATION.

Quality of Life!! Peace of mind…You’re on a TEAM

Business Structure: Create a professional sustainable economic path.

Growth: Define what it means to you. (Acres/Head/More VS. Profit….)

Risk Management: 4 D’s (Disaster, Divorce, Death, Disability)

Transition & Contingency planning: (Who has your back?)

Stability & Critical Mass: (Operation size can ebb and flow with less impact)

New Opportunities: (Competitive advantage)

Efficiency: (Equipment, purchasing, marketing, personal time)

COMMUNICATION

DYNAMICS & ISSUES

BEWARE: FARM COMMUNICATION DYNAMICS

Family Governance Requires Respect

Listen and Understanding

Family Structure 3rd Party Rights by Privilege / Age

Driven by Emotions

Business Governance Requires Professionalism

Facts and Documentation

Business Structure 3rd Party Rights by Qualification

Driven by Facts / Conditions

In God “We TRUST” …. Everyone else bring numbers!!

3 COMMUNICATION CONFLICTS / WATCH OUTS

Transparency ? Do you have this in your operation?Economic, Planning, Information exchange, Triangulation communication

Technology? How are you handling this? Generational, Rapid change, Social media, Resistance

Transition? Started Yet? Is your plan evergreen?

Expectations, The unknown, Comfort as it is now

3 REASONS FOR NOT HAVING MEETINGS?

1. Is the content going to be confrontational or painful?

2. How much time will the meeting take?

3. When we are done talking, what will we get out of it and what is expected out of me?

PURPOSE OF MEETINGS: “SOLVE ISSUES”

Progress Meetings: Once per week… Have a specific Agenda / Right People

3 Topics…… Examples: Things that need improved, fixed, or changed

Same time / location / Time limits on topics – table some for next meeting

List the issues for the meeting. I.e. (seed placement, herd health, employee)

Discuss the issues one at a time and then….. SOLVE IT! (talk + talk + talk = Paralysis) IDS Documentation / Minutes for next meeting

Provide specific action items with who is responsible / Accountability

Whether you have 2 people or 20…. Have the meeting!!

Score the meeting. 1-10 (How can it be better?)

Identify Gaps in Your Transition/ Collaboration Plan.

1. Updated Will?2. Land holdings in a Trust…. OR….. guided business plan?3. Buy – Sale agreements?4. Insurance Plan? (IE. Term Life….. on partners/family farming together?)5. How much annual income is need for exiting generation to maintain

standard of living? 6. Who is on your transition team?

(CPA, Attorney, Lender, Financial Planner, Ins. Agent, Ag Facilitator)

BUSINESS STRUCTURE CONSIDERATIONS

Control: Defined Decision Rights? ( Clear Roles and Responsibilities)

Bookkeeping: Cleaner accounting separation between profit centers , better tracking and accuracy.

Leadership: (Transmission fluid VS. Captain of the Ship)

Organizational Structure: (Organizational Chart vs. Accountability chart) …. Example

Communication: Constant need, SOPs, & Specific Meetings

Map Your Operational Buckets 1. Ownership: (Now and in Future?)2. Where is the income generated from?

3. Economic (Cash Flow) plan for the transition / collaboration?4. How will the equity transfer (Will, Purchase, Gifting, Discount Values, etc.)

5. Who is the operator/owner in charge? 6. Timeline for transition completion? 7. Contingency plan / exit strategies?

Land Holdings

Crop Operations

Equipment

Trucking

Livestock Operations

Other Profit Centers

STRUCTURE…… EXAMPLE

Land Holding Entity

Entity #1 Entity #2 Entity #3 Entity #4

Equipment LLC. Trucking LLC.

THE PROCESS TO START SETTING A CLEAR STRUCTURE.

1. Draft the final goal (Perfect world?) VISION 2. Document the current base line of existing operations.

3. Clearly identify the operating entities desired and their roles.

4. Define the people and ownership levels of entities on “start –up”.

5. Be flexible, patient, analytical, openminded, and critical along the process.

6. Document a baseline market value on all participating assets and liabilities.

7. Build baseline market value balance sheet for each new entity.

8. Establish rates for any value exchanges between entities.

9. Build your plan first: Then use CPA and Legal Council.

10. Have a clean and simple exit strategy / Buy Sell Agreement / Term Life Insurance

Strategy is a commodity

EXECUTION is the art…..

Website: AgViewSolutions.com

Chris BarronAg View Solutions LLC.

E-mail [email protected]: 319-533-5703

Podcast: “The Ag View Pitch”

Cost of Production Ranges 2010 - 2020

Corn Example % Cost Range Per / Bu. Cost Range Difference

Land 25% - 43% $.90 - $1.88 $0.98

Equipment 12% - 26% $.52 - $.97 $0.45

N P K 12% - 21% $.50 - $.75 $0.25

Seed 11% - 14% $.43 - $.60 $0.17

Crop Protection 3% - 6% $.17 - $.20 $0.03

Zone Mgmt. / VRT Equip. 1% -3.5% $.03 - $.15 $0.12

200 Bu. Corn

Depreciation $30,000 $30,000 $30,000 $30,000 $30,000

Inflation $20,000 $20,000 $20,000 $20,000 $20,000

# of Years Total Annual $50,000 $50,000 $50,000 $50,000 $50,000

5 Example of a purchase and a trade after 5 years.Dep. $150,000 TIME Year 1 Year 2 Year 3 Year 4 Year 5Inflation $100,000 Original $400,000 Replacement of same machine.Cost/Yr. $50,000 Equipment Total Cost $250,000 Purchase $300,000

Price$150,000 Salvage value of original machine.

5 yr exampleInflationary replacement cost increase $100,000Market value depreciation $150,000Actual Cost of operation to stay current: $250,000

Chart Example: Produced by Ag View Solutions

EQUIPMENT COST CALCULATIONS ?

Total Machine Value $216,000

Fuel Cost per/Acre $1.07

Labor Cost per/Acre $0.67

Overhead costs per/Acre $0.41

Basic Equipment cost/Acre $18.31

Total cost/ac. $20.45

Machine Cost Analysis Tool

Machine Titles JD 8335R JD 1770NT

Implement Value $130,000

% of use in this operation 100%

Tractor Value $215,000

% of use in this operation 40%

Pass Title Planting corn & soybeans

Other Expenses - Ins./ Logistics $1,200.00

Avg. Daily hrs. "total per/day" 10.0

Labor Cost per/hr. $20.00

Fuel Cost per/gal. $3.57

Fuel consumption per/hr. Gal. 9.00

Fuel consumption per/ac. Gal. 0.30

Interest, Depreciation, Repairs 25%

Total Annual Acres this operation. 2,950.0

Equip. LLC 2020ASSETS LIABILITIES EQUITY Annual Gain

2011 $1,944,770 $834,446 $1,110,324 100.0% ROA2012 $2,631,284 $1,360,242 $1,271,042 $160,718.86 6.11%2013 $3,044,777 $1,376,484 $1,668,293 $397,250.97 13.05%2014 $3,132,628 $1,298,188 $1,834,441 $166,147.67 5.30%2015 $2,255,970 $660,787 $1,595,183 -$239,258.00 -10.61%2016 $2,260,237 $510,902 $1,749,335 $154,152.00 6.82%2017 $2,169,910 $202,300 $1,967,610 $218,275.26 10.06%2018 $2,285,736 $145,103 $2,140,633 $173,022.66 7.57%2019 $2,575,217 $488,559 $2,086,659 -$53,974.25 -2.10%

4.53%

2019 Value Hrs./Miles15' JD 680S Combine J Own Yr. #4 complete $195,000 1425/943.3 $217,000 10.14%

18' JD 780S Combine T Lease Yr. 2018 New 395/296.2 $0 0.00%

16' JD 8320R Tractor IVT New in 2017 $222,500 1,171 $240,000 7.29%

18' JD 8320R Tractor IVT New in 2018 $247,500 388 $286,695 13.67%11' JD 9530 Tractor $0 3,016 $142,500 0.00%18' JD 9620 Tractor New Purchased in Aug. 2018 $352,500 175 $404,805 12.92%10' JD 9430 Tractor $122,000 3,751 $136,000 10.29%10'JD 1770 NT 24 Row 30 Inch's Box/ row Cln. $82,900 $82,500 -0.48%10'JD 1770 NT 24 Row 30 Inch.Smt Box/ row Cln. $82,900 $82,500 -0.48%14' JD 1770 NT12 Row 30 Inch Planter $69,000 $69,000 0.00%10' JD RTK Auto Steer for Planter Tractors $22,500 $24,500 8.16%10' 2 CrustBuster Seed Totes $7,550 $8,550 11.70%10' Goose Neck Trailer $7,550 $7,950 5.03%13' JD 8310R IVT Tractor $156,000 3,354 $167,500 6.87%16' JD 2210 Cultivator 55.5ft Purchased in Mar. 16' $52,000 $63,750 18.43%15' JD 2210 Cultivator 55.5ft Purchased. 2015 $48,500 $56,500 14.16%JD Starfire 3000 / Receiver $1,500 $2,850 47.37%13' JD Draper Head JD 940F $48,000 $55,500 13.51%16' JD 612C Cornhead/devastators New in 2016 $63,500 $72,500 12.41%18' JD 712C New in 2018 12 Row Cornhead $86,500 $92,500 6.49%07' #1 JD AUTO TRAC (AUTO STEERING) $5,500 $6,500 15.38%07' #2 JD AUTO TRAC (AUTO STEERING) $5,500 $6,500 15.38%GPS on any Tractor plus Auto Track $6,500 $7,500 13.33%13' 2 2630 JD GPS Monitors $16,000 $18,000 11.11%

12' EXTREME 1115 GRAIN CART $30,500 $32,000 4.69%12' EXTREME 1115 GRAIN CART $30,500 $32,000 4.69%Raven monitors Cords / equip. $2,000 $2,000 0.00%16 Cornhead mover $4,850 $6,000 19.17%11' Head mover "Green" - for corn Head $2,500 $3,500 28.57%13' In Line 5 Shank Kuhn Krause Ripper $8,500 $10,500 19.05%17' 21ft Dominator New in 2018 $57,500 $71,000 19.01%RTK Equipment for Strip till $6,000 $6,000 0.00%12' Head Mover for Bean Head $3,500 $4,500 22.22%07' Land pride Rotary Cutter $3,250 $5,000 35.00%11' JD HX15 Rotary Cutter $8,500 $9,000 5.56%2006 Ford F250 Flat Bed White $4,200 87,113 $5,000 16.00%Tools on the Service Truck $6,000 $7,000 14.29%09' JD 2630 Monitor for 8310R Tractor $4,900 $4,900 0.00%Hiniker Cultivator 5000 From C&B Feb. 2013 $4,000 $5,000 20.00%Hiniker Cultivator 6000 #1 Pur. April 2013 16row $9,500 $10,500 9.52%Hiniker Cultivator 6000 #2 Pur. Dec. 2013 $8,000 $9,100 12.09%13' Hiniker Cultivator 6000 #3 NEW Pur. Dec. 2013 $12,500 $14,500 13.79%15' Strip Till Bar / GPS Equip./Hitch Kraus $62,500 $70,000 10.71%13' 1 2600 Monitor $2,700 $7,500 64.00%14' Brent Wagon 644 New in 2016 $11,000 $13,000 15.38%16' New Devesator for 13' corn head $4,000 $4,000 0.00%15' Hitch RTK for Strip Till & 24 row Planter $6,000 $6,500 7.69%18' JD Draper Head JD 940F NEW $85,000 $92,500 8.11%18' Head mover for the New Draper $9,000 $9,375 4.00%18' Brent Grain Cart $52,350 $58,600 10.67%11' JD Gator $8,500 $8,500 0.00%12' JD Gator $8,500 $8,500 0.00%

#DIV/0!Total Machinery & Equip/ Vehicles $2,357,650 #DIV/0!Annual replacement cost increase………... 4% $2,357,650 $409,925 2,767,575 14.81%

$110,703 2019 dep. Total 2018Total Market value Depreciation …….. for 2018 $520,628

ITEMS LAST UPDATED 2019 2019 $'s 2020 2020 $'s 2021 2021 $'sCombines Owned '12 #1 & #2 Lease '15 #1 15 off lease USE USE - Trade NEW-LEASE (100,000) Lease '15 #2 18 on lease USE USE - Trade NEW-LEASE LEASE

Heads TJ '11 Current 2016 USE USE USE Jason '11 Current 2018 USE USE USE - TRADE 50000 BEAN HEAD '12 2012 USE USE USE

2018Grain Carts Current (2)'12 2012-(2) USE USE USE - TRADE- NEW

2018-(1) TRADE 15000Planters Jason 24 row '10 2010 USE Trd ('10)-NEW'20-USE 250000 USE Chris 24 row '10 2010 USE USE KEEP Rick 12 Row '14 2014 USE USE Trd ('14)-NEW 24 r-USE 225000

Tillage '12 Fld Cultivr 2016 use USE USE '13 Fld Cultivr 2015 trade for cart or s-t … … '04 Fld Cultivr … … … '14 Strip Till Bar (tra 2015 USE-TRADE 100000 NEW '20 - USE USE In line Ripper 2013 USE USE USE '12 Domintr 18' 2018 Trd 2 for 1? NEW'19 USE USE '13 Domintr 18' Trade 2 for 1? … …

Tractors '13 8310R 2013 USE - Trd NEW '20 - USE 200000 USE '11 8335R #2564 2018 USE USE USE '11 8335R #2566 2016 USE USE USE-TRADE 150000

'11 9530 4WD 2018-9620R New'18 9620R -USE USE USE '09 9420 4WD … … … '10 9430 4WD 2010 USE USE USE-TRADE '21 275000

sidedress bar 2013-new USE-NEW'19 45000 USE USEsidedress bar 2013 USE USE NEW '21 50000sidedress bar 2013 USE USE USE

$'S needed '19 $160,000 $'S needed '20 $450,000 $'S needed '21 $650,000

Productivity Tracking Totals

Machine Code Totals Idle Work Transport Planted/Ac. Ac/hr.

JD 8335R C HOURS 146.5 56.5 82 8 2211 15.1

Machine Cost/Hour $9,522.50 $3,672.50 $5,330.00 $520.00

Productivity 100% 39% 56% 5%

Fuel Consumption 725.5 70.5 581.1 73.9

Fuel / Per Hr. 5.0 1.2 7.1 9.2

Fuel Cost $2,466.70 $239.70 $1,975.74 $251.26

Labor Cost $2,930.00 $1,130.00 $1,640.00 $160.00

Logistical Cost $1,780.96 $1,369.70 $411.26 $0.81 Per / Ac.

Total Cost/ Fuel Labor $5,396.70 $1,369.70 $3,615.74 $411.26 $2.44 Per / Ac.

Total Cost/ Acre ALL $ $14,919.20 $2,739.40 $7,231.48 $822.52 $6.75 Per / Ac. Total

Total Acres 2211Machine / Hr. $65Fuel / Gal. $3.40Labor / HR. $20.00

Tractor Cost /ProductivityOnly = Time, Fuel, Labor

Without: Interest, depreciation, Repair

Website: AgViewSolutions.com

Chris BarronAg View Solutions LLC.

E-mail [email protected]: 319-533-5703

Podcast: “The Ag View Pitch”

COLLABORATION / TRANSITION STRUCTURE CONCLUSION

What makes it work?

Documentation / Transparency

Trust / Confidentiality

Similar Vision (Operational & Long term)

One operation mindset (Clear Expectations)

Diversity of talents / Competencies

Strong Harmonic Leadership

Balance Family, Operational, Business

What screws it up?

Lack of Documentation / Transparency

Honesty (IE. Not sharing mistakes) Self report.

Different Visions (Not all “One Operation”)

No Clearly defined expectations.

Too much individualism ( TEAM ) (We not I)

Leadership Not Consistent

No Contingency Plans & Cross Training