Sweat Equity and Farming

Introduction A part of the Cultivating Your Farm’s Future program In farming, sweat equity is a term that is loosely used to define how established farmers use payment of a commodity or capital assets to replace some of the cash wages for employees. Sweat equity is also the term sometimes used to compensate a successor for years of labor and management that helped build the owner generation’s wealth. It can be used to justify gifting personal, titled property, or giving a discounted price when the property is eventually sold to the successor. When considering labor compensation in forms other than money, the goal of both the employer and employee should be analyzed to ensure it is an appropriate compensation package. Sweat Equity used for Commodity wages Forms of commodity payments include: Immediately consumable meat, milk, eggs or other food items in place of a cash wage A commodity of grain, milk or animals that will be sold and eventually converted to cash Breeding stock that can either remain in the employer’s herd or used to start the employee’s own herd Transfer of ownership or a percent interest of ownership in a capital farm asset If the employee’s goal is to learn more about the farm business and gain management skills, commodity payments can provide a way to allow him/her to make management decisions on a smaller scale. Sweat equity payments in the form of commodities can help the employee gain experience in the management and marketing of the commodity. One example would be the payment of grain allowing the employee to make decisions of when and where to market that grain. Market livestock can provide additional skill development as the employee makes management decisions to raise the livestock to market weight. From the employer’s perspective, skills development can translate into a better employee who can be given more responsibilities. In addition to skill development, the employer may not have the cash flow to completely compensate the employee, but can provide the commodity as part of the wage package. Finally, there can be income tax savings if a portion of the wage is in the form of a commodity. However, if this is the main or only goal, the parties should consider if the tax savings is large enough to warrant the work required to document and adhere to the income tax rules. If the employee’s goal is to eventually manage their own herd, payments in breeding stock may be a viable option. Again, this provides the opportunity for him/her to develop management skills while the farm manages cash outlays for labor. With this option it is important to consider where the animals will be housed. In the case of a dairy, if animals stays in the original herd, but are owned by the employee how will feed and other ownership costs be paid and how will milk income be distributed? The employer must consider the long-term implications of the employee’s animals remaining in the herd and taking facility space from the owner’s herd. The employer should determine if they can manage the loss of the income? Or does the owner need to calculate overhead costs and charge this expense to the employee? Sweat Equity used for Succession When the goal is to slowly transfer business assets to the next generation, sweat equity can provide the transfer of assets or percent interest in assets to the successor. For example, breeding stock can be transferred to the successor over time allowing them to own a significant portion of the herd. This mode of equity transfer can be facilitated by forming a business entity that owns farm assets as shares or interest. These shares or interest can then be transferred to the successor. This option, when clearly outlined in a farm succession plan, can provide the successor generation a guarantee that the assets will be transferred. This guarantee removes the speculation that surrounds a verbal promise of “Someday, this will all be yours”. Sweat equity can also relieve the pressure of cash flow on the operation if the successor can manage their living expenses with a smaller paycheck. One thing to consider with this option is how much of the assets can and should be transferred in this way. Is the owner generation dependent on these assets for retirement? If the answer to this question is yes, how much of the assets can be provided in trade for labor? How much needs to be retained by the owner or be sold to the next generation for cash to fund retirement needs? Valuing Sweat Equity Sweat equity is as valuable as cash equity and should have a one-to-one conversion rate. Therefore, it is important to correctly value the items being given as sweat equity. Some commodities have a worldwide market and their value can be more easily determined by this market value. Other commodities produced on farm such as cattle are not as easy to value. While market can be used to determine an animals worth, this may be undervalued if the animal can command a premium above what they could be harvested for. For example, cattle with high value phenotypes or genetics can sell for much higher than market value. It is important to have production records on these animals including milk, fat and protein to determine the value of these animals. In addition, rolling herd average and classification scores can be useful marketing tools. In addition, cattle can be appraised to determine their value. This is most commonly done for insurance purposes but also can help determine a baseline value of your herd. To assess the animal’s worth, the appraiser will evaluate the quality of the animal. This can include a comparison of your animals to animals of similar quality that have recently sold. An appraiser may use a calculation to determine fair market value. This calculation will be specific to the type of cattle, cow or replacement. Milk cow appraisal includes future milk production, future calf production and the current

Work Life Balance

We just finished our farmers’ market season. We are ready for a break. A break from extra early Saturday mornings and my husband working every night restocking the market trailer after working outside on the farm all day. I often spend evenings entering inventory or writing the newsletter. Therefore, the title of an old article I ran across struck me as important and something we could use a refresher course on. The article was about work life balance. It’s hard for those of us that come from what I refer to workaholic families. The unspoken rule was the more work you do the better. Family vacations could be counted on one hand with fingers left. This is not a good habit nor is never leaving the farm something to be proud of. Let me share what I learned from the article Robert Milligan of Dairy Strategies LLC wrote. Robert suggested four reasons for working “too” much. Our financial status doesn’t allow opportunity to hire sufficient labor to enable us to work reasonable hours. No one else is capable of doing the work we do. Time working is more urgent, even though not more important. There is nothing important to do in non-work time. The first reason is a challenge for many, but it’s also used to justify the next two reasons. The last reason often happens because while we’re young and able to handle all the physical labor farming requires. We don’t realize the need for hobbies and off farm activities. Sometimes we must force ourselves to get off the farm to develop other interests and nurture hobbies. It’s important to do so in order to develop interests before we don’t have other things to pursue when we need to slow down because our bodies can’t keep up with farming or it’s time to transition the farm. Those of us who work too much believe subconsciously or consciously, or unintentionally or intentionally that we are the only ones that can do the job right. We need to get past this challenge. Here are four suggestions we can learn from: Make Life Balance a Priority Steve Covey (Seven Habits of Highly Successful People) developed a four-quadrant rectangle, which included: 1. Quadrant of crisis, the goal is to reduce the time spent on these items. 2. Quadrant of Quality, the goal to expand the time spent on these items. It includes everything important but not currently urgent. The quadrant includes many work activities such as leadership, management, training, coaching, and professional development. It also includes much of our personal/family time. Two other quadrants include: 3. Quadrant of Deception and 4. Quadrant of Waste. This is where unimportant activities are located. Items we are doing that do not have value or are wasteful of our time. These can be eliminated. Success requires expanding the time available for Quadrant 2 activities. This is done by making these items a priority, by setting aside time in our schedule for these things. The first step is the hardest, start small and expand the time little by little. Remembering time management is not about time but about priorities. Plan for Life Balance We need to be off work at 5 pm to meet family obligations or evening meal but always work an extra hour or more because there are always uncompleted tasks that need to be completed. Many of us do that, we work too much because we don’t have a plan to do otherwise. Some ideas to help in this instance are: Outline what needs done. Determine what can reasonably be done in the time available. Complete high priority tasks only we can do first, even if they are tasks we tend to avoid. Delegate tasks to others. Become more efficient with work time. Train Others to Complete Some of Your Tasks Employee management, failing to recognize employee capabilities can be a huge area potential loss on a farm. Sharing responsibilities spreads the burden of tasks to be completed over a larger group of people. Stop focusing on the weaknesses of employees and look for the strengths and potential. Based on employee strengths and potential, select one task you currently do that one or more employees can successfully complete. Develop a plan: Create employee(s) excitement for the task Provide required training Establish performance expectations Coach and provide feedback, including comparing actual and expected performance expectations. When the employee is successfully managing the task, select another task to transfer from our task list. Not only are we freeing up more time for Quadrant 2 activities, including personal time, but we are also increasing productivity and job satisfaction of our employees as we trust them with the activities. Enhanced Personal Efficiency Sometimes stepping away from an activity is the best way to become refreshed to return and accomplish what needs to be done. While working through long days and nights without a break creates burnout. Failing work life balance also creates a very inefficient work style. The next time we just can’t go anymore get off the farm and do something, anything to create more work life balance. We will come back to the task refreshed and renewed, even if it’s a short break. Good work life balance makes a person more efficient at work and happier in life. It’s like a lot of things we know we should do but often don’t take time. Its time work on creating a better balance for the sake of our family, our farm and ourselves.   

The Invasives Creep Up on Us

Every time I glanced at my flower bed; I saw them. Yet others didn’t. An invasive flowering plant had gotten away from me. Very early in the season I pulled some out, but I was in a hurry and didn’t get them all. Short on time I let it go. I knew I should address the issue by setting time aside to free my flower garden of them, but I didn’t. This morning as I was finally removing the invasive flower, I realized I had a very pretty lily that was almost snuffed out by the invasive. Thankfully it still has a few small blooms and was uncovered in time for the plant to regain its strength. As I was pulling weeds and the overgrown invasive the wise words of a renowned farm succession expert rang in my head. Attorney John Baker of Iowa State Beginning Farmer Center, often remarked, “You have what you put up with.” A simply yet profound statement of truth. Farm Invasives Not all of the invasives are in farm fields, hedgerows, or forests. They can be found in the financials, equipment, structures, employees, working relationships, family members and family dynamics, to name a few. They are items that we “put up with,” avoid addressing or ignore. However, as with all invasives the issues grow bigger and out of control if left go. Examples include: 1. Financials It often starts unintentionally when savings or personal funds are tapped to pay the bills. Thinking next year, we’ll catch up and get back on track. Debt increases and the conversations around farm financials are tense. It could be financials have never been a strong point but we’re too proud to ask for help. 2. Equipment Farm equipment can present safety hazards. Unaddressed safety hazards are accidents waiting to happen. Accidents harm people, livestock, equipment and result in potential for legal action. Time and dollars spent fixing farm equipment prevent down time when you most need the equipment, time spent in court or heaven forbid lifetime regret of loss of life. If the hazard cannot be fixed, it may be time to develop a plan to replace the equipment. 3. Structures Farms often have a wide array of structures from historic to newer and the challenges are as varied as the buildings. It’s easy to let building issues go because they are lower on the project list. Be careful the issues don’t become safety hazards or prevent the building from functioning as it should to safely hold livestock, feed stuffs, or equipment. 4. People Issues The messiest invasive of all are people issues. There may be communication challenges including personality struggles or conflict resolution issues. It may be a learned defensiveness or wall that’s been put up as the result of an abusive professional or personal relationship. There may be a toxic relationship among family members or employees that has gone unaddressed. Remember you have what you put up with and it’s time to deal with the issues and set boundaries. Bad behavior is unacceptable behavior. Removing the Invasives The first step is acknowledging the issue(s) we have to admit there is a problem in order to deal with it. Working together with others on the farm to address financials, equipment and structure problems will spread the burden and creative thinking among many people and often results in the best potential solutions. The best option for the farm may be the hardest to accept. The best option may require transitioning farm enterprises to a more financially feasible enterprise for the farm. A piece of grandpa’s farm equipment may need to be replaced because it’s too dangerous and someone is going to get hurt. A farm building from the 1930’s may have outlived the remodels and need replaced. Working together the farm team can determine the best options for the farm. The Root of the Problem If people issues are the root of the problem, they need dealt with first. If inappropriate actions have been accepted in the past it will take time and patience to change. Addressing issues one on one may be the best place to start. We may uncover someone dealing with personal issues/crises and the frustration from those are spilling over on the farm or vice versa. The person may not realize their words or actions are negatively impacting others and the farm. Things may also be addressed in the group setting of a farm meeting. The best way to ensure all know behavior expectations is to provide meeting guidelines and follow them. Reminders may be required throughout the meeting until everyone gets used to the new protocol. A prop may be used to ensure everyone is heard during the meeting. For example, if one person tends to dominate the meeting, pass around a small stress ball or other object and the person in possession of the item has the floor and the rest of us listen. Once they are done speaking the object is passed on to the next person. This also gives a voice to those who normally don’t speak up. Everyone listens to learn while others are speaking. The meeting facilitator or leader should remind people there are not any wrong answers and we should use our listening skills to learn other points of view. It will require practice to adjust but the method works. The Beauty of an Invasive Free Farm The best results occur when invasives are removed root and all. It’s also the most challenging method. Don’t get overwhelmed by the immensity of the issues. Set aside time to focus on one invasive at a time. As everyone’s voices are heard and positive results seen we will be motivated to continue the process to address other farm challenges. One step at a time we can get rid of invasives and renew farm vigor.