Financial Access for Off-Farm Owners
How can an off-farm owner convince her sibling partner she has a right to farm financial information and a say in financial goals?
By Dr. Donald J. Jonovic
By Dr. Donald J. Jonovic
SUBMITTED BY Q.V., VIA EMAIL
My father suffered from prostate cancer many years before dying of the disease four years ago at age 90. At the encouragement of his attorney, he decided to get the farm shares out of his estate by passing them to me and my sister, Lynn. She and her husband, Bob, have operated the farm for years. My husband, Jack, and I have never farmed and made our own lives in Chicago, 500 miles away. Dad kept a couple of shares of our S corporation and split the rest between us. Believe me, we were all surprised by what Dad did. Now, Mom has the swing vote, though she will always vote the way Lynn and Bob want. Our problem has to do with information or, more accurately, the lack of it. The accounting information we get is almost nonexistent. Lynn seems to think it’s enough just to let us know that “the farm has broken even again this year.”
Jack and I aren’t accountants, but we know that we are part owners in a beautiful, prosperous farm that is no benefit to us. Lynn and Bob are good farmers, and we can’t understand how they always “just break even.” Jack thinks they run all their living expenses through the farm, and at the end of the year they do always seem to have plenty of cash to buy more equipment. Even I know that you don’t build up cash by breaking even. We’d like to see their accounting system.
My sister and I get along, but we have never talked business; I never did with Dad, either. Now that part of this asset is ours, we want to get more involved. My sister just stonewalls. Mom says nothing.
Shouldn’t we have some rights to information and to some say in the decisions about the farm?
Our tax laws and cash basis accounting have undermined the need to truly understand operating profit and business value on many farms. Instead, accounting clarity has been replaced by an obsession with breaking even higher and higher every year.
This strategy has its advantages, but it also leads to secrecy like Q.V. is seeing with her new partners.
It’s likely, for example, Lynn and Bob aren’t reporting personal benefits from the farm as income, and they are prepaying next year’s inputs and also buying equipment needed next year to save on current year taxes.
Unfortunately, this approach encourages imprecise accounting and terrible cash management. This can lead to chronic cash droughts and, worse, unexpected disaster as the piper demands his pay during business or market reversals. Cash may be king, but cash basis accounting can too often be its assassin.