Blogs

My farmer came in for lunch to warm up and was reluctant to head back outside feeling chilled. His labor is now being compensated by a buy-out plan from our successor son. What’s keeping me on the hot side today is processing the coaching conversations where the next-gen is working for “free”, that is, they are not getting paid at all! Another young guy reached out because Dad is offering him $18 bucks an hour while I suspect $30 is the right wage.

The new term in 2022 for sweat equity is “delayed compensation”. FCC has recently broached this topic here. What the article misses is the HOW to have the conversation about getting expectations written into signed operating agreements.

Here’s what consultant farmers Andrew Deruyck and Mark Sloane wrote 11 years ago.

“Ned Needshalp found himself in a pickle when his hired man of 15 years Steady Teddy retired. Ned operates a sizeable grain farm that has very high seasonal labour requirements. Ned is 55 years old and was faced with the decision to downsize, quit or begin training new help. His son Fred expressed an interest in the farm but was concerned with the capital requirement and risk associated with purchasing the entire operation. They reached an agreement in which Fred would work on the farm for a salary they agreed upon of $50,000 per year $30,000 of which Fred uses to live upon and $20,000 which remains invested in the farm with a 7.5% return. (2011 remember !) This investment is kept track of and if Fred decides to take over the farm someday this will form part of his down payment. (Elaine’s note: The trouble is in today’s reality a farm family needs $74K for living, then more to pay service debt if they are buying equity, We all know what the price of land has done in the last decade, Fred cannot afford to buy all the land!)

S. Jobbs has held a number of prominent executive positions in the corporate world, he has climbed the corporate ladder two rungs at a time, however, felt torn between continuing his prominent corporate career and returning to the family farm. After much soul searching, Mr. Jobbs decided to give the farm a chance. His parents encourage and support his decision, felt that a fair approach to the situation offered him the same executive salary he was making in the corporate world. His drawings from the farm were only a ¼ of the salary however it was expected he pays fair market value for the farm. Similar to the previous example the difference between the salary and the drawings would remain invested in the farm. (Elaine’s note: I have corporate salaried farm boys working for free on the family farm with the expectation of cashing out the land when parents are deceased. Farm boy’s spouses are NOT happy about the free labour and wonder how funds will be allocated if a successor son dies early. Are spouses going to be compensated for years of free labour? How?)

Ed Jimcated ran a successful farm his entire life on a grade 9 education and was successful doing it. He placed no value on formal education. Keeping his son Ed Junior on the farm and avoiding the cost of sending him for post-secondary education he offered his son the value of the education inequity on the farm. Ed had 2 other children which he sent to the big city for some scoolin and it cost him $15,000 in room, board, tuition, and books in addition he figured $25,000 per year was missed if the children had been working full time. He offered Ed Junior $40,000 per year for 5 years a total of $200,000 with a 7.5% return if he would stay home and work with him on the farm for 5 years. At the end of the five years, this sweat equity could be rolled into ownership on the farm or he could take his money and run! (Elaine’s insight: The educated siblings likely know the value of the farm, and if Ed is going to run I suspect they also want a piece of the value of total farm assets. Parents are avoiding this tough conversation about expectations that are not workable. Ed and his aging wife need to be taken care of first with an $80K/year or more, income stream. Sure hope they were smart to build up a personal wealth bubble beyond the farm assets).

Kary Kepitgoin is a fourth-generation farmer and can’t imagine selling the farm on his watch! He wanted someone in the family to take over the operation and was willing to give it all away to see the operation continue on. There was one problem his wife wanted some sense of fairness to the children who decided not to farm. Their son enjoyed the farm work however had very realistic expectations of profit on the operation and because they were at established jobs his wife was not willing to take the risk without some certainty that they would own the necessary assets for a sustainable farm in the future. Kary and his wife agreed that they would sell the farm in the future at a reasonable price that would easily cashflow and the difference between this price and market value would be called sweat equity. This was discussed with the other siblings and everyone was in agreement.

In summary, the four situations demonstrate four different examples of calculating sweat equity. The decision to use on not to use sweat equity is very individual. However, if you are going to use sweat equity it is important to pre-determine its value. Where we have seen major problems is in situations where the open discussion has not taken place and there are vastly different expectations of sweat equity value and terms within the same business team.”

You need to talk about fair compensation and pay wages on your farm. You need written agreements that outline what terms for payment in the future were agreed to and let the non-farm heirs know why certain decisions were made.

This how-to conversation is now more complicated with increased living costs, professional ag salaries, and parents who still have not used a financial planner to seek out where their income streams are flowing from. Ask me for Wittman’s compensation worksheets as a place to start here and sign up for my blog. Track your living expenses using your bank statements.

***

Elaine Froese and her coaching team help farm families find harmony through understanding. Reach out for a free discovery call. We can guide the tough conversations on your farm.

Did you enjoy Really love the next gen with decent compensation…sweat equity 11 years later? You might want to check these articles out too:

Decreasing your money woes by tracking personal expenses
Farmers with Beautiful Office Make More Money!
Being Smart with Your Personal Wealth Bubble

Fixing Your Time Stress Mess

60 minutes

Workaholics will discover helpful strategies for managing their time stress. Gain understanding for the tensions of your age and stage on the farm. Learn why some problems are not solvable, but just need to be managed as polarities. Self-renewing people are joyful and productive producers.

$15

Rave reviews

“A joy to work with, heard loud and clear. When the farmers laughed or asked a great question, I knew they were listening and really wanted to learn from her. Her tips were easy to understand. It was just about understanding that conflict happens, and to have the confidence in yourself to ask for what you want. In the glowing review from farmers after her presentation, I knew they had heard that loud and clear.”
Maddy Berner, Event Planner & Communications Coordinator, National Milk Producers Federation National Milk Producers Federation
“I wanted to say a HUGE thank you for your virtual kitchen table chat with Arlan Academy. My wife and I signed up as it was exceptionally relevant to our current journey with potentially transitioning to her parents’ farm. The session was able to cover so many aspects of these crucial conversations and hearing you speak to both sides of the conversation was eye opening for my own perspective on this topic. It seemed to be very well attended and sounded like there were many other people who would echo my thoughts and feelings on it.”
N. Oakley, Farmer, Ontario
“Elaine helped me allocate $1 Million of assets the night I listened to her. Elaine’s presentation brings value to the use of my services in my office.”
Don Forbes, Forbes Wealth Management
“I recently joined in and listened to your Healthy Farmer Agriwebinar for FMC. I truly enjoyed hearing your perspective and even went and grabbed my Mom, away from her work, to come and listen in on some of your main points as well! One area that really stood out for me, both personally with our own succession plans and with our clients, was your discussion involving "Instant Influence" and how ready are you to change? I loved this concept!”
Annessa Good, FCC Transition Specialist, Alberta
“Elaine Froese truly is the Farm Whisperer. With her big heart and stern resolve, she guides families through uncharted waters and helps them arrive safely at their desired destination. She has been there, done that, and has helped hundreds of families come out on the other side. With your family and your farm legacy on the line, you owe it to yourself to start this conversation. You do not need to do it alone. Let Elaine Froese guide you through. Your legacy is being written day by day. How will you be remembered?”
Tracy Brunet, Host of The Impact Farming Show & CEO of Farm Marketer
“You speak like you’ve been sitting at our kitchen table! You know our family issues well. I am feeling more comfortable understanding what we now need to do. Elaine Froese is real.”
Audience Member,
“I attended the meeting you spoke at in Stratford Ontario recently. We held an emergency family/farm meeting today because of issues that I had enough of. We used a 'talking stick' like you recommended and wrote a chart of rules. The rest of the family thought the idea that we needed a meeting was worth rolling their eyes over, until we got started. The younger ones were quick to clue in that they now have an opportunity to be bluntly honest. The older ones took a bit longer to believe they could truly say what they think. In the end, the meeting needed two sessions because there was so much to talk about… and so many things people didn't realize were a big deal to the others. Your lessons and encouragement have given us the tools we need to get to a better place in our relationships and our business. Truly thankful.”
Kim Martin, Dairy Farmer, Ontario
“Helped me develop my framework to start having constructive and meaningful conversations around the farm.”
Tennille Wakefield, Farm Partner
“Some great lessons, Elaine! You continue to do some remarkable and potentially life-changing work.”
James Mitchell, Principal, Conversations Consulting
“Our family had a good farm meeting yesterday afternoon. Your Fairness video was a great topic of discussion. One of the action items after the meeting was to have my two non-farming siblings watch the video before the next big meeting they are involved with on the farm. It will be a great conversation starter as we catch them up on our current plan. As they are younger, we also hope it will help them to ask new questions that may not have been on their mind.”
G.G., Farm Family Legacy Coach, Alberta
“Elaine gives me excellent tools that help me work with my clients!”
Laurianne Osmack, Financial Planner / Partner, Doell Osmak Wealth Management
“She has a sense of “knowing” quickly what is happening in the family dynamic. Her messages to her audiences drive home what needs to be done next to solve the complex issues of farm transition and conflict resolution.”
Audience Member,
“Eye-opening. Excited to open the door of communication with my spouse and farm family.”
Ashley Hoppe, Farm Partner
“The Strong Farms, Strong Families session gave farm families an opportunity to meet face to face with Elaine Froese... hear her own story, experiences and skill set. From this information packed session and related materials, families could identify areas of success in their journey and other places they need assistance. The greatest take away was that participants could see that Elaine Froese is someone they can trust with the things that they hold most precious.... their family and their farm.”
Nancy Atkinson, Nobleford Ag Society, Alberta
“Elaine’s real-life scenarios help her audiences know they are not alone, knowing there are creative solutions to help them get the life on the farm they have always wanted.”
Audience Member,
“A long time female client who had refined the art of procrastination was so moved by the end of your presentation that she accepted your permission to “drop the bananas.” She contacted me soon after for an appointment to do some planning which included the selling of the family “Century Farm.” A very, very emotional decision on her part that was not likely to have occurred without your presentation.”
Don Forbes, Forbes Wealthy Management
“I just have to say… that your work is amazing and I have never forgotten your teachings from our session in Williams Lake at TRU. It is super important work. I know so many people going through the trauma of succession. I hate to use that word, but I was an “out-law” and know it can get terrible. I continue to forward your emails on to others. Keep doing what you do! You are amazing. You kind of walk into the fire regularly… and with a smile. Proud to have met you.”
Megan, BC Rancher
“As my husband and I eagerly started the course we were optimistic and excited to be taking this next step in our Farm Transition. We were starting to question ourselves and whether or not we were just being selfish and greedy, and if this Farm Transition was still an option for us. We barely got through the first Module and were already having such a huge relief. As we moved through the modulus there were so many times that we just sat back with our hands in the air and thought YES. My husband and I would smile with relief because all of the concerns that we have been struggling with were relevant and came up in the modules. We really enjoyed the course and are excited to move on to the next stages to find our farm resolution.”
Shannon Gilchrist, “Get Farm Transition Unstuck” online course participant
“My hubby farms with 2 brothers and parents, and it’s become a really toxic place. No communication, no respect, etc. Twelve months ago, my husband’s brothers told him they don’t want to work with him anymore and offered him a pay out. His parents did nothing to stop it! He had no choice but to leave. Three months later, we moved off the farm and into town. He has been offered heaps of jobs and is now truck driving and carting hay and grain. We have tried communicating with his parents about what happened but they are not interested. So basically my hubby has lost his family. Very sad but we as husband and wife are overall in a good place and moving on to create our own life. Please continue on with all your wonderful work in helping families on the farm. I continue to tell any farmers I know about you, that they must ‘google’ you, and read your books.”
Donna, Farmer, Australia

Book Elaine
for your next event

Contact Elaine to start the conversation.

+1-204-534-7466 | elaine(at)elainefroese.com

Contact Elaine