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BI: Plan Ahead to Ease Management for Future Generations
Luke and Naomi Perman are the fifth generation of their family to earn a livelihood in South Dakota’s Swan Creek Valley near Lowry, South Dakota.
The young couple are in the transition of management – and eventually ownership – of the family’s 400-cow Rock Hills Ranch from parents Lyle and Garnet Perman. The building of a sustainable ranching enterprise that uniquely matches the younger Permans’ personal needs is a strategic goal.
“I want to find those production practices that best match our resources with our labor force,” says Luke. He and Naomi find personal time stretched to the limit with the parenting of twin toddlers.
“A lot of management practices I’d like to develop are presently based on theory, and it’s going to take some time for us to figure out what we want to do for the next 30 to 40 years,” says Luke, 31. “I’ve got a lot to learn about what’s going to work for our specific situation.”
As he considers the personal needs that could lead to change in the operation’s historical way of operating, he weighs the pros and cons of present haying and grazing practices.
“I’d like to try different approaches to grazing, in particular, experimenting with the timing of moving cattle from pasture to pasture. From the work we’ve already done, we’ve seen improvements in grass production resulting from strategic pasture moves.
“I don’t have the time to do more intensive grazing and still put up hay,” he says. “Putting up hay may be a negative factor when there are other management practices we could do that would return more profit.”
Grazing cornstalks late in the season and buying hay to feed cattle over winter are labor-saving options. Luke continues to weigh advantages and disadvantages of each option in order to determine its future viability.
As he builds a personalized management style that will meet his family’s unique needs, he draws on managerial expertise and decision-making skills he began learning as a youth. Because of these, the transition of management from father to son has so far been seamless.
Here are the processes the family worked out over time to ensure a smooth generational transfer of the operation.
• Instill a sense of ownership. “It was our goal to involve our children in the ranch and to have them develop a sense of ownership,” says Lyle. “We hoped to instill in them the desire to come back to the ranch as adults.”
Involving children in small-scale farm enterprises helped them acquire a sense of ownership at an early age. “When our children were just 3 and 4 years old, we started encouraging them to raise chickens,” says Lyle. “They learned a lot about sound financial principles from managing the hens and the chicken coop.”
Luke and his sister, Kajsa, set aside money earned from chickens and bought sheep. As they grew older, they invested their money in cattle. “The money they earned from cattle they used to pay for college expenses,” says Lyle.
• Require physical presence for livestock ownership. “From the start, we had an understanding with our children that if they wanted to have livestock, they had to be here to help out with the responsibilities,” says Lyle. “When our daughter got married and moved away, I bought her livestock. She and I both cried that day, but absentee ownership just doesn’t work.”
• Transfer management gradually. After graduating from college in 2006, Luke began working full time on the ranch alongside his father. For four years, Lyle made most of the decisions.
In 2010, when Lyle was just 55, he and Garnet leased the cattle to Luke and Naomi. They also began leasing equipment and land to the younger couple.“Luke consults with me, but he now makes most of the decisions,” says Lyle. “I want to be replaceable, and I feel confident that if I were to die, Luke is completely capable of running the ranch without me. He’s the kingpin in the operation, and I’m here to tail him up and keep him going.”
• Transition assets. As Luke and Naomi lease the herd from their parents, they are replacing livestock with their own cattle as cash flow permits. They lease the pastureland by the animal unit per month. They rent the tillable land by the acre and grow corn, wheat, and soybeans.
Depending upon type of equipment and field operations, Luke rents his parents’ machinery by the hour, by the acre, or by the bale.
“Garnet and I continue to own most of the land,” says Lyle. “What’s most immediately important for young operators is that they build equity in livestock. In time, Luke will inherit most of the real estate, and our daughter will inherit cash-type assets.”
• Communicate. Open and frequent two-way communication is the key that facilitates the family’s generational transfer. “We talk a lot,” says Lyle.
As they work out the transfer of the operation, they hope to sidestep the pitfalls the process often presents.
“We’ve seen so many operations where the only alternative after the death of the parents was for the children to dissolve the business,” says Lyle. “It’s our goal to create a situation that allows our son to run the ranch as an ongoing operation.”