Anyone here have experience on entering a family business that's capital intensive like farming?

I'm working on the farm and making money that I'm completely comfortable with the last two years, but I haven't put much in other than labor and minor expenses. My dad has mentioned purchasing equipment from him as he slows down, but the acres we farm and the equipment/cattle he owns I put it at a 10 yr buyout process considering keeping the acres. Once you give up acres it's hard to get it back everyone in the business knows that.

Anyone have experience doing it this way or another way that can offer advice? I have siblings so I won't inherit it all

Are any siblings interested in the family farm, or work on the family farm? The way most of these transactions occur is through a leveraged buyout where your dad will seller finance for you. Certainly becomes more complicated if there is outside debt and siblings want to get bought out.

How many acres are we talking? Is it going to be enough to support the quality of life that you want?

Could get sticky. There's a lot of other underlying variables at play. Interested to see the comments.

One sibling has mentioned not seeing the reason to sell their third, the other would. The one that wouldn't has a good job and mentioned wanting to retire around 55 and maybe come back. Hard thing would be figuring out how he'd benefit from owning a third but not working any with the farm until retirement.

My dad only keeps a line of credit in case he wants to buy something within a short time span of a large cash purchase or payment.

We farm around 3200 acres, 100 cows. Plenty to support my lifestyle. I told my dad maybe I could put up a percentage of expenses, using operating loans until I have made enough to make one of the bigger equipment purchases from him. And basically lease the rest of the equipment on a percentage used basis.

Yes it could, we all have good relationships range from age 26-33 all married, not naive thinking nothing COULD happen though.

TJH_16 said:

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Yes it could, we all have good relationships range from age 26-33 all married, not naive thinking nothing COULD happen though.

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Even good relationships can get challenged on stuff like this but most of all beware the spouses.

texAZtea said:

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Hell hath no fury like a wife who decides at the last minute that the deal isn't fair.

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Having a flashback there.....

TJH_16 said:

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Anyone here have experience on entering a family business that's capital intensive like farming?

I'm working on the farm and making money that I'm completely comfortable with the last two years, but I haven't put much in other than labor and minor expenses. My dad has mentioned purchasing equipment from him as he slows down, but the acres we farm and the equipment/cattle he owns (about $3m) I put it at a 10 yr buyout process considering keeping the acres. Once you give up acres it's hard to get it back everyone in the business knows that.

Anyone have experience doing it this way or another way that can offer advice? I have siblings so I won't inherit it all

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Be sure to sit down with someone knowledgeable in the tax consequences of something like this. It sounds like your dad will owner finance about $3m in equipment and livestock. Likely all of it is fully depreciated. Suppose the purchase price is $1,400,000 to be paid out over the 10 years. If it is fully depreciated, your dad with have $1,400,000 of income in the year of sale, even if he collected little or nothing in the year of sale.

To make matters worse (and I haven't looked at this in a few years) but since you and your dad would be considered related parties, you cannot immediately write off the equipment and livestock under IRC Sec. 179 or under the bonus depreciation provisions like you could if you bought it from a stranger.

Very envious you and your family have that much acreage! Hope you all can reach an agreement to keep it going and going and going.

I appreciate the advice and didn't know about the write off due to family. We'll definitely setup a meeting with our CPA when starting we get that rolling.

Yeah my dad always says he wishes he would have bought more land when he started getting a few places. He farmed with a partner for 20+ years that told him he's crazy for paying what he was for farmland but now it doesn't look that crazy. But we do lease a majority amount of the farmed acres.

I wish you good luck. Lots of land mines but a great legacy. My dad bowed out of the family farm in MT to avoid family conflict. He had seen the conflict his parents and their siblings went through buying it from his grand parents. He wanted no part. His older brother bought it. Now the question, will the next gen buy it from him.