Farmer Bob knew he wanted to retire from his years of dairying, be financially secure and be able to spend a few months out of the year in Florida. So, he spent the five years leading up to his goal retirement date getting his dairy running like a finely tuned machine. When the time came to sell, five neighboring dairies got in a bidding war over the opportunity to purchase his operation – land, cows, youngstock, facilities and all.
Farmer Bob is now enjoying retired life, on the beach, working on reversing his farmer’s tan.
His neighbor, Farmer Joe, spent his whole life dairying, and while he always talked about retiring someday, he never really made a plan. Over the years, he grew tired, and so did his facilities. Milk production struggled, as did employee morale. Finally, one day, he had enough. When a neighbor offered to purchase his land, he was ready to give it away.
Farmer Joe sold off the cows too and got just enough from the sale to pay off his debt. To cover his monthly living expenses, he has to go to work at a local hardware store. He still hopes someday he can get out of the Midwest and make that trip he always talked about to spend a few days somewhere warm.
Farmer Bob is laying on the beach. Farmer Joe is out in the cold.
If you’ve been in dairying for a hot minute, there’s a good chance you know a Farmer Bob and probably a Farmer Joe, too. As a dairy management consultant, I see these two scenarios play out daily. What is the difference between these two farmers? It comes down to this: forced retirement versus planned retirement.
A forced retirement often looks like this: The dairy owner selling off assets for just enough to satisfy the bank loan, then having nothing left to live on. This might be the knee-jerk reaction for the owner who feels financial pressure or is just plain “done” with the stress of dairying. Perhaps it’s health or a family situation that prompts a sudden sale. An auction company gets called in and sells off cattle and equipment, piece by piece. The empty facility sits vacant.
On the other hand, a planned retirement begins years in advance. It involves key individuals, including someone to help walk you through the stages of a process that will lead you to your end goal. Whether the goal is to sell a turnkey operation or usher the next generation into a business that will carry them into the future, planning is what makes it possible.
How to plan for retirement from dairying
If a planned retirement scenario is what you want life after dairying to look like, here are a few steps to take now:
1. Define your goals. Whether you are 35 or 55, it’s not too early to start planning for a graceful exit from a career in dairying. Give thought to the point in time, whether that’s an age or a number of years, for when you want to be retired. Consider what you want that to look like and the amount of money you will need to not only pay off debt but to also live the life you want.
2. Get the right people at the table. Stepping out of the day-to-day grind and thinking about the future can sometimes be challenging. That’s why it’s important to bring someone with experience to your table who can evaluate the facility on both the financial side and management side. This person can make recommendations on how to increase the value of the operation so it does not deteriorate over time. Revisit the plan and its progress at least annually to keep things on track.
A tax person and an attorney are also your allies in the planning process. Work with a knowledgeable tax person who can project the implications of selling assets in various scenarios. It may be advantageous to spread out sales over a few years. If it is your goal to bring a family member or non-family member into ownership, work with a trusted attorney now to discuss options and put clear plans in place for leasing or gaining ownership over time.
3. Position the operation for the highest value. No one wants to jump on a sinking ship. That said, if a dairy looks like a shipwreck, it’s a tough sell. The best way to optimize the operation’s value is to make it a no-brainer for another dairy producer to want to purchase: a seamless turnkey. That means well-maintained facilities, a good herd of cows, an established milk contract and a solid team of employees that doesn’t miss a beat if ownership were to change hands. Who wouldn’t want to buy a dairy like that?
Are you feeling overwhelmed?
Perhaps you are ready to exit dairying in the next couple of years but are running out of steam to see it through. If that’s you, you are not alone. Know that you have options, and one of those options could be to turn day-to-day management and decision-making over to a professional team that can dedicate the necessary time and energy into getting the operation to a condition of peak value.
Asking for help can be hard in the moment, but a forced retirement situation can be harder in the long run. You get to choose if you want to be Farmer Bob or Farmer Joe when your dairy farming days are done.
What’s your choice?
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