From rising input costs to labor issues to ongoing regulations, young farmers are faced with many challenges to successfully take over the family operation. To truly navigate all these roadblocks, the next generation must understand the financial and business aspects of farming.
Independent financial consultant, Gary Sipiorski, offers several tips on getting the next generation involved in money management.
1. Learn Financials. All children need to be taught to have respect for what money does and how to handle it. Those interested in continuing the farm need to start with a savings account at an early age in grade school. They need to realize they have to work and do some type of meaningful chores, get paid, and see a bank account grow.
When they get into high school, they need to have a checking account to purchase small items of clothes, tools, and sporting equipment. Understanding how to reconcile their checking accounts monthly needs to be taught by parents. Having a debit card tied to the checking account should come a short time later.
How these financial tools work together needs to be learned. Not everyone will agree, however, a credit card during senior high school should come next. Learning the importance of its proper use and paying the balance off when the statement comes will be a key future skill.
2. Financial Literacy for the Farm. As children grow into their early teens and when they have reached a level of a desire to understand what kind of dollars run the farm, further financial discussion needs to occur. Parents will have to be the judge when the time is right. Seeing the amount of money coming in from milk checks, livestock sales, grain or other sales will be eye-opening. Then the ongoing expenses will bring some reality to the discussion.
Take time to explain the whys. Year end income statements should be part of the monthly meetings. As further discussions arise the importance of accrual year-end adjustments should be explained. The upcoming generation may have suggestions for projected cash flow for the next year when those are done. As time goes on the balance sheet will need to be shared. Seeing the huge dollars of the farm financials comes with a reminder that all the information needs to be kept confidential.
3. Others Can Also Teach. Hopefully, some general personal and farm financial information can be picked up at school. There are proposals now to have every high school required to have classes in personal finances by 2027. When there are meetings with accountants and lenders, the next generation should be allowed to sit in once again at an appropriate age. Many farms have quarterly farm meetings with accountants, lenders, veterinarians, and other farm advisors. Let the next generation sit in. Even if it is a day to be dismissed from school.
4. Now in Their twenties. As interest in the farm continues at this age, allow the next generation to be involved in making financial decisions. Have them help work out a plan and projections based on a new purchase for the farm. It could be a new tractor, a milking parlor update, robots, or a land purchase.
5. Is it Too late? After reading the above, one might say, “I am too late. The next generation is too old now.” It is never too late to learn. Start where you are and start teaching, sharing, and giving responsibility.
6. Professional Teaching is Available. Professional Dairy Producers (PDP) can help. The financial literacy curriculum was developed by Dr. David Kohl along with a few other knowledgeable people. The attendees are taught the basics at each session and then go home after each session to apply what was learned to their farm financials. This program has been highly successful.
According to Curtis Gerrits, senior animal ag lending specialist for dairy with Compeer Financial, dairy operations often delay involving the next generation in the financial and management decisions. He offers the following four “E’s” to assist in navigating the integration of the next generation into the succession plan for your dairy operation.
Engagement
It is never too early to involve the next generation in your dairy operation, especially if they are showing interest in becoming part of the business. Include them in team meetings with your lender and/or consultant, have them shadow the financial aspects of the business and solicit their input on decision-making processes. Learning by doing provides valuable insights into finance and management for future managers.
Education
Business and financial management skills are not acquired overnight. While on-farm experiences and engagement are beneficial, a more formal approach can elevate financial knowledge for the next generation. Accounting and financial programs offered through community colleges, local agricultural programs or dairy organizations, like PDP’s Financial Literacy for Dairy program can provide comprehensive education for future dairy business owners and managers.
Empower
Empower the next generation of your dairy operation to make decisions and handle regular tasks like bill payments and balancing checkbooks. Demonstrating confidence in their abilities will foster assurance and proficiency in their financial awareness and business management decisions. This empowerment encourages them to elevate their involvement to more engaging levels.
Experience
Julius Caesar said, “Experience is the teacher of all things.” While experience accrues over time, especially within family enterprises, investing this time is crucial for the next generation’s development in running a dairy business, particularly one that is uniquely yours.
Money management is demonstrated from one generation to the next. Open and ongoing communication about the farm’s financial blueprint can help the younger generation to develop a better understanding.
