Sunset in Burleson County on May 2, 2021. (Laura McKenzie/Texas A&M AgriLife Marketing and Communications)
Family businesses are unique, especially farm-ranch family businesses. As a farmer or rancher, working with your family is one of the greatest blessings that most can accomplish, but as we all know, it can also present exceptional challenges. Today Pancho Abello will discuss how to begin a farming or ranching family business organization.
Dates and Deadlines
12/7/2021 – Swisher County Ag Meeting
12/14/2021 – Canyon Estate Planning Meeting
12/8/2021 – Armstrong County Fall Producers Meeting
1/19 – 1/20/2022 – Red River Crops Conference, Altus, Oklahoma.
1/25, 1/26, 1/27, 2/9, 2/10, 2/23, 2/24, 3/9, 3/10/2021 – Amarillo Master Marketer
1/26 – Organic Cotton and Peanut Production Seminar. Seminole, Tx.
1/27 – Rolling Plains Chemical Conference. Dickens, Tx.
What We’re Reading
Master Marketer program helps farmers, ranchers reduce risk, increase profits – AgriLife Today
Estate planning workshop set for Dec. 14 in Canyon – AgriLife Today
AgriLife Extension offers education at Amarillo Farm and Ranch Show – AgriLife Today
USDA invests in strengthening meat supply chain – Beef
Alternative cattle reform bill brings major overhaul – Beef
WHEAT SCOOPS: The wheat/corn price relationship is not normal – Southwest FarmPress
Farm Family Business Organization
Families are more than a business; they are the center of our lives for most of us. Developing a well-done family business organization is essential to keep a healthy family and profitable business together in the future. In general, the problems begin when several family members are involved in the company without having explicit divisions of responsibility. Differentiating where each of your responsibilities begins and ends will help reduce potential problems between family members who work in the company and those who only have an ownership interest.
Farm Family Organization
A typical farm family organization consists of three groups, the family, the management team, and the business owners (Graph 1). Some family members play more than one role in the family business. Generally, the business owners are family members and part of the management team. In-laws and spouses may or may not have ownership of the company. However, they still must be considered and educated in the family business. It is also normal to see direct family members or in-laws forming the management team. Although, in many cases, employees can hold managerial positions.
Graph 1. Farm Family Organization
Working with family members is a challenge. Every day is more common to see businesses disappearing and land divided when transitioning into new generations. A transition from an informal farm family organization to a formal family farm business organization will help family members profit from working with bigger economies of scale.
Family Farm Business Organization
A professional family business organization will include a board of directors, a management team, and shareholders (Graph 2). The most significant benefit of having a business organization is understanding each member’s rights and responsibilities. Further down, we will focus briefly on the rights and obligations of each group in the business organization chart.
Educating each family member to differentiate their obligations and rights is essential to grow a family business and ensure it lasts for future generations. It might be challenging for members that held more than one position as a director, manager, or shareholder. Even if there is a sole proprietorship, educating your children and family will be advantageous. This process involves direct family members, in-laws, and key employees.
Graph 2: Family Business Organization
Shareholders
Shareholders have the right to give their opinion and vote to express their will, approve procedures, and appoint the board of directors that will represent them. They have the right to know the company’s production, financial, and economic results. Being shareholders does not give them the right to be in the daily operations, work in the company, or give orders to its employees. The management team handles day-to-day operations.
It is essential to train all shareholders and future shareholders in interpreting results, evaluating budgets, and understanding the business’s risk and dynamics. They need to know and understand their operation and its potential income. This way, they will not demand more than the company can give.
Board of Directors
The shareholders elect the board of directors’ members to look after their interests, generate value, and define its medium and long-term strategy. The board of directors must hire and oversee the general manager to operate the business.
It is widespread in a family business that the general manager is a shareholder and part of the board of directors. This might lead management to prioritize urgencies over medium and long-term actions. An excellent strategy to overcome this issue will be to appoint an independent director who is not in the management team to help the board focus on the business’s strategies.
Management Team
The management team should execute the business plan short term and long term to achieve the business objectives and goals. The operation should compensate family members with management positions according to their responsibilities and capabilities of the company. The compensation that corresponds to having a management position, or being a director, must be well differentiated.
Shareholders and directors should not interfere in the operational tasks of management unless they fulfill both roles. Managers are obligated to be accountable for their actions. They need to keep the board of directors informed and report production, financial, and economic performance results.
Why bother with an Organization Plan?
Farms and ranches businesses scale are getting smaller after each new generation. A family business organization is essential to keep the family working together and have a competitive business scale. It is not just a business at risk; it is also our family. Companies are expected to grow and change, and we need to prepare. We need to set up a family business organization to accomplish our goal to keep a healthy family and a farm business running in the future.