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Woodbury-Farm Family Business 08/28 06:13

   Tight Margins, Tighter Family

   When family members are stressed, they tend either to shut down or explode. 
Try these tips for heading off emotional side effects of thin profit margins.

By Lance Woodbury
DTN Farm Business Adviser

   As we head into a season of lower commodity prices for grain producers, 
concerns about financial margins can cause stress among owners in a closely 
held business. A seemingly endless list of issues emerges: determining 
financial priorities; challenging one another's assumptions about what the 
business really needs; understanding the risks associated with certain growth 
opportunities; communicating with nervous lenders, vendors or landowners; 
responding to employee's requests for additional compensation and more. The 
impact of all these, and others, can result in a feeling of being overwhelmed. 
And when people feel overwhelmed, they tend to lash out at those to whom they 
feel closest, which often means their family members.

   To combat the tendency to beat up on your business partners, consider the 
following three strategies for your family business meetings. Implementing 
these ideas doesn't mean you will avoid differences of opinion, but it can turn 
the contention into consensus. The resulting plan can help you weather the 
financial turbulence you might experience. 

   COME WITH GOOD INFORMATION

   Utilize historical data and financial projections to prevent conflict that 
originates in false assumptions. I remember one family that was upset about the 
general level of compensation paid to employees, but when we looked at the 
actual numbers and the suggested increases in pay, the effect was not a 
significant factor to the business. In another case, family members assumed the 
family living draws didn't amount to much (they withdrew only what they thought 
they needed), but when we added them up, we discovered that they placed the 
business under significant financial pressure. When talking about margins, 
expenses, investments or projections, having accurate numbers to frame the 
discussion is important. Use your CPA or have someone spend time generating 
good data for the discussion. Doing so begins to move the discussion beyond 
opinions and assumptions to scenarios and plans and decisions.

   COME PREPARED TO DISCUSS PRIORITIES

   Even with tighter margins, you will still need to invest in your business. 
The question is where. What areas of your company are critical to your short- 
and long-term success? Fertility may be top of the list, but a new sprayer may 
not be. Investments in people are important to your effective operation, and 
may warrant investment even in a down year if it helps you take on more acreage 
or business opportunities. Discussing rents with certain landowners may be a 
necessity in some people's minds, and talking through that strategy in a 
still-competitive market is critical to its implementation. The point is, have 
each person think through what's most important, so the discussion has some 
depth and rationality when negotiating with family members about where to 
invest.

   DEVELOP CONTINGENCY PLANS TOGETHER

   Years ago, with a family business in a different industry, we spent time 
talking through "what-if" scenarios around a declining market. Within a year, 
the market did indeed begin to decline and, because of our discussions, we had 
most of the game plan figured out. As a group, the family had worked through 
some of the tough decisions prior to their actual need, and as a result they 
were able to execute quickly. From an agricultural standpoint, you can develop 
plans for equipment, land improvements, marketing, overhead expenses, employee 
changes, and less-profitable ground before the actual need to cut is upon you. 
You can also spend time brainstorming revenue generating ideas that may prove 
valuable.

   When family members are stressed, they tend either to shut down or explode. 
Communicate more often by committing to regular "check-in" discussions, which 
can provide a relief valve for the anxiety that builds when margins are tight. 
Yes, it takes time to communicate and can at times feel inefficient, but the 
dividends can be seen in more consensus, less conflict, quicker decisions when 
critical issues emerge and ultimately a tighter family unit.

   Editor's Note: Lance Woodbury writes for both DTN and our sister 
publication, The Progressive Farmer. He is a Garden City, Kan., author, 
consultant and professional mediator specializing in agriculture and 
closely-held businesses. Over his two-decade career, he has guided many 
families through inter-generational farm transfers as well as mentored 
successors. Contact him at lance@lancewoodbury.com


(MZT/CZ)

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