A nonfamily partnership is a way to enter, exit the business

Barriers to entrance vary but can be grouped under lack of access and lack of financial support.

Beginning farmers and ranchers often get started with family. But what if the family operation isn’t big enough to bring another person into the business, or they don’t have family involved in production agriculture?

Those who don’t have access to ground or a business to transition into often deal with a lack of financial support to purchase land and other assets. The upside for beginning ranchers is: Many ranchers are nearing retirement age.

While retirement isn’t typically used in agriculture, experienced farmers may not have an heir coming back to the operation and may want to help a new rancher get started; thus, they will be transitioning out of management and ownership at some point.

Finding and creating a partnership between the two generations is an ambitious plan and has potential to work and benefit both parties. It will, however, be just as much or more work than returning to the family farm.

How do you find each other?

Many states, through the Department of Agriculture or extension, have linking programs that can assist. Landowners and beginning farmers can sign up for the program and then receive a listing of potential individuals. Similar programs are available across the nation through state agencies and nonprofit organizations.

Put your best foot forward

Beginning farmers interested in creating a partnership must create a resumé. What have you done? What is your formal and nonformal education? How have you prepared yourself to work in agriculture? It is important to tell your education and work experience story. This story, combined with a thought-out business plan, provides valuable information to the landowner.

The asset owner should do the same thing. Why would a beginning farmer want to work with you? Share the management and decision-making tools you utilize in a resumé form. Indicate lifelong learning by including a list of extension or industry trainings you have attended. Provide a history of the operation, including the highs and how you overcame adverse situations.

Keeping secrets about your experience, goals and history will create hardships and reduce confidence in each other when the secrets come out.

Don’t fence yourself out

As nonrelated partners, there are many ways to begin working together. Keep an open mind about what can be done to increase the odds of success and happiness for both parties.

During the initial stages, an employee/employer relationship could be established. This step allows time to get to know each other. This time provides an understanding of how the operation is currently managed, allows the beginning farmer time to save for future land allocations while providing labor assistance to the asset owner.

Setting a two- to five-year timeline for this phase allows the beginning rancher time to begin working with a banker for financial needs.

While the transition will likely move slower than the beginning rancher would like, they should realize this is also time for the asset owner to come to terms with letting go of management and ownership of their business and livelihood.

They must talk to any heirs about inheritance issues, set up retirement accounts and make many other financial, personal and business decisions.

Use the time to learn

During this time, learn about the different business entities. A business entity between the landowner and the beginning rancher may be a method for the transfer of ownership, management and income. What are the pros and cons of creating a limited liability company, partnership or other business entity?

Also, learn about contract-for-deed options for ownership transfer or analyze the financial feasibility of purchasing life insurance for the landowner to fund final purchase agreements.

Get it in writing

The most important step to complete, after both parties agree to the creation of a lease or new business partnership, is to ensure all components of the agreement are in writing. Handshakes can be done when the paperwork is signed.

Integrity among the parties is paramount to a successful transition. However, the paperwork requirement should protect both sides in cases of disability, divorce, creditors or other liability issues. The paperwork also provides information to the landowner’s heirs, eliminating legal battles following the death of the asset owner.

Work with an attorney to ensure the legal document created accomplishes the goals of both parties, and everyone understands what the components mean.

Risk management

The landowner and beginning rancher will have a financial risk in the newly formed partnership. Evaluate production insurance (crop and livestock insurance) products to reduce financial risk. These tools help protect both sides from production and price risk. Other insurance products to consider would be umbrella farm coverage policies.

These would help protect the partners from unexpected expenses from livestock damaging another’s crop or causing personal injury, equipment repairs and others. While insurance is a risk management tool, it is also important to evaluate the cost/benefit relationship of each policy, as they will add to required cash flow needs.

Market risk is an important management concept that should also be learned. Developing a comfort level and understanding of futures and options, forward contracting and basis, will allow for the creation of marketing plans that are profitable and limit risk.

People are involved

As the transition of management and ownership is discussed, it is easy to forget humans are involved too. And humans have feelings that are often communicated poorly, if at all.

Communication and listening will be a critical component to the success of this transition. The beginning rancher will need to remember while they graduated from college and were the leaders of the clubs or were the high scorer on a judging team, they are now back to “freshman” status.

The new rancher must listen to what is being asked and do the work they know needs to be done, all while keeping the landowner informed. Learn to ask questions that educate on why certain activities are done a specific way and then learn how to present your ideas proactively.

Communication will be a significant component for the landowner as well. Communication will have to move beyond the day-to-day activities and production of the operation. Learn to listen to new ways of doing everyday tasks and implement sound, well-thought-out ideas.

Remember, new ideas are not attacks on your methods, and they may work. Communication with heirs will be vital and is up to you. Your heirs need to understand you have a partner in the business, not a hired man, and ownership of the assets are being transferred/purchased by your partner.

Communication will be the driver of any success the new partnership will have. Develop a plan, write it down and work to accomplish your mutual goals. Implement risk management protocols and create a team of professionals to assist as the partnership grows and matures. There will be hills to climb and successes to celebrate as the years pass.