What is Your Farm Child’s Sweat Equity Worth?

When I don’t know the answer to a burning question, I go hunting for it.  Usually, the best answer is found by researching the topic. What do the experts say? They’re the ones with the insight and experience.  We look for answers in the same way we hunt for a tasty recipe, an effective worksheet, or a lucrative bargain. When we need to know something, we will discover the path. 

Recently, the agonizing question was calculating sweat equity.  Each farm family, who has worked together for many years, has a different way and means for determining the value each family member brings to their business.  Until I began researching the topic, I believed the contentious issue was limited to only sweat equity. I had no knowledge that slave labour was also prevalent on some Prairie farms because of unfair compensation.    

Here is something I do know: Peace and harmony are achievable among family members when you begin your succession and estate planning early.  Determining what your farming child brings to the business in the way of labour and management abilities may play a big part in getting your succession plan off the ground.  Sweat equity is certainly an important component of the plan.    

Experts Share Their Perspectives

On my discovery path, I came across an article written by Country Guide’s senior editor, Maggie Van Camp.  She did her homework.  She hunted down experts and shared their expertise in her article, Cleaning Up Sweat Equity.     If you catch yourself awake at night because you are wrestling with the best way to treat your children fairly, you might find some comfort in her publication.

Both sweat equity and fair compensation deserve equal recognition.  When your farming child decides to return to farm with you, the first question is, “Can the farm support another family?”  This leads to the next question: “What is fair compensation for the child’s labour and contributions to the operation?”   Don’t stop there. Because then you will need to know, “Do they deserve more based on their commitment to take on risk, unique contributions in terms of management skills, and living their dream while carrying on your legacy?”  

I see a line that eventually gets crossed.  Initially, a farming child may be working for Mom and Dad but eventually working with Mom and Dad.  What may begin as compensation for hired labour may later be factored as a combination of compensation and sweat equity for their contribution.  

           

One of leading experts is David Goeller, a transition specialist with the department of Agriculture Economics at the University of Nebraska-Lincoln.   He provides an example in his paper, Putting A Value on Sweat Equity, as a guideline to determine the successor’s contribution based on the Net Worth of the family business at two specific time periods.  You can liken this to “before and after” financial snapshots of the family farm.  What was the farm’s financial net worth before the farming child returned and then after his return at a specific future date?  All participants, Mom and Dad and their farming child, will share in the growth of the business.  

The example set forth by David Goeller is only a guide.  This is a starting point which you can build upon.  As he states in his paper, every operation will have different factors and likely arrive at a different percentage for the value of the successor’s contribution.   

Mr. Goeller made a very profound statement when addressing non-farming children. He said, “Treating unequals equally, may be the most unfair thing you can do!”   

“Sweat Equity” Vital to a Successful Succession Plan

Your succession and estate plans are important but when you can estimate sweat equity you are one step closer to finalizing these plans.  

We are often reluctant to do something unless we understand the purpose of a specific activity.  Diligently keeping accurate Net Worth Statements provides proof of the farm equity built up over the years as a result of your efforts and those of your farming child.  This evidence may be the proof needed to convince yourself as well as other non-farming members.  I fear that if there are no means of tracking, then you have no means of measuring financial success.   

You may even recognize that your farming child’s contribution may be the leading factor in the expansion and profitability of the farm. Without his or her labour, management ideas, specialized knowledge, leadership abilities, and experience, your farm may not have advanced as efficiently on your time clock. Using the financial statement as an assessment tool, or job performance report, may provide evidence for delivering compensation in recognition of a job well-done. Whether your farming child is the brains-behind-the-operation and/or the grunt-labour, you have a method to measure their contribution.

The Worst Outcome

The saddest outcome for any family is to find themselves in court disputing an estate settlement.  Parents are somewhat reluctant to openly discuss the decisions they have made about the division of their family farm property.   Your intentions shouldn’t surprise family members. Once you have a tentative decision, then your next step is to share this with your family to avoid any future litigation in court.

Your Net Worth Statements over multiple years will provide concrete proof of the family member’s contributions. This truth allows you to justify your actions to your children while you’re alive rather than have them wonder what you were thinking once you’ve passed away.  I’ve heard comments, “I’m afraid what our other son will think if we leave our home quarter to his brother.”   I realize fear is often a factor that hinders people being open and honest.  Having family members duke out unresolved issues in court is far worse than you facing your fears and sharing your intentions.  

Information Helps You

Information educates us about issues we might normally never have considered.  Arming yourself with a wealth of resources is equivalent to arming yourself with ammunition. When you do, you are prepared to set the stage for meaningful conversations with your family to determine what works for you and them.   

I recognize the benefit of starting the “planning phase” early so you can measure the fair market value of your farm at pre-set increments to determine the contribution your farming child makes (or doesn’t make) to your farm business.   

In the end, I value and appreciate the wisdom David Goeller shares as he wraps up his paper.  The main desire is to ensure your family will all be eating Christmas dinner together for years to come.

Keeping Christmas in Perspective

The all-too-familiar question, “Are you ready,” is often asked as Christmas approaches.  As you prepare to answer, you mentally roll through the tasks on your long to-do list.  Doing all that’s required on your list is one way to get ready for Christmas but the other way is preparing yourself for the cost.  Christmas, for most people, can come with a high price tag, higher than some anticipate or would like.  The challenge is to set a realistic budget.  A memorable Christmas doesn’t have to be expensive unless you choose it to be.  Somehow in the hype of the season, you may lose focus of your dream list.  Think about it.  If you want a winter vacation, you want to ensure you don’t blow your entire savings on Christmas.  

My friend, Marilyn, is so wise.  She has always faithfully saved for Christmas.  A set amount is transferred every payday to an account called “Christmas Savings”; so when Christmas arrives, she enjoys the holidays financially stress-free because she is prepared for the cost.  When you stop to think about expenses associated with the festive holiday, the list is long.  There’s the  Christmas tree with its decorations and lights, the turkey dinner with all the fixings and, of course, there are the gifts.   Don’t forget the new Christmas outfits for your family and you.  Goodness, what would Christmas be without a variety of baking, chocolates and nuts? Your list may also include travel costs.  Lastly, your generous donation to the foodbank ensures others enjoy Christmas too.

Saving and spending should be coordinated smartly.  Saving with the intention to spend the money on a special occasion like Christmas is a smart strategy which requires honesty. First, you need to be honest with yourself. How much can you realistically spend when you consider all your financial obligations, loan payments, living expenses, and other reasons for savings, retirement or children’s education?  Second, you need to be honest with others, your family and friends.  Too often, you may feel pressured to spend more on Christmas gifts than what you can afford or even what you want. 

Everyone’s perspective on Christmas is entirely different.  Some enjoy lavishly spoiling loved ones with gifts because they can while others prefer to celebrate with a greater emphasis on the time spent together with family and friends.  However you spend this joyous season, you want a Christmas which is memorable and enjoyable without the burden of wondering how you will pay for it. Christmas was never intended to be burdensome. 

As you complete those final touches in preparation for this important holiday, take a moment to reflect on your feelings. If you have managed your Christmas on a realistic budget, congratulate yourself.  If you need to promise yourself that next year you will do better, then create a plan.  There isn’t a better time to make a promise than at the start of a new year.  

Merry Christmas!

Finding the Perfect Gifts

 

Christmas is a time of giving and receiving gifts. You may be both the giver and receiver.  If you are anything like me when I shop, I have a tendency to stumble upon things I would like when shopping for others.  Surprise! Surprise! These items I want have a way of finding their way into my shopping bag.   Although material gifts are beneficial, I know gifts of peace, joy, and love surpass them.  Somehow the comparison is bleak when you have a new sweater but peace, joy, and love are lacking. What gifts are you in need of finding for yourself this Christmas?

Recognize that money worries have a tendency to steal these precious gifts of peace, joy, and love.  What can you do to prevent this? One way which helped me break the cycle of worry is taking note of my thoughts. How do I think? What things do I say to myself?  In turn, I ask you the same question.  What kind of thoughts do you generate in your mind?

One of the greatest inspirational books ever written is The Power of Positive Thinking by Dr. Norman Vincent Peale.  When a book makes the bestsellers’ list you know it’s good.  When a book sells over 5 million copies, you may want read it. Amazing how much a book can offer a person when you have an open mind to what it is teaching. Dr. Peale’s commentary on the back cover states, “This book is written with the sole objective of helping the reader achieve a happy, satisfying, and worthwhile life.”  If money worries are taking away your ability to live a happy, satisfying, and worthwhile life, this book may offer some solutions.     

Ways of finding the perfect gift for yourself

The gift of peace is derived from a positive attitude.  Winston Churchill said, “Attitude is a little thing that makes a BIG difference.”  You will make significant progress by adopting a positive attitude.

 

The gift of joy comes from reading positive and encouraging resources, books, and articles.  Replacing negative thoughts with creative and healthy thoughts happens when you feed yourself a generous dose of inspiration.

 

The gift of love will propel you to be, to do, or have everything you want. The first chapter in Dr. Peale’s book starts with “Believe in Yourself! Have faith in your abilities! Without a humble but reasonable confidence in your own powers you cannot be successful or happy.” 

 

If you are hunting for these precious gifts, you may choose to follow a guiding light within you, a gentle nudge that will lead you in the right direction. However, it’s up to you to interpret which direction to take. Take stock of your life and live within your means. This is the best advice a financial planner can give. As the New Year approaches have faith and hope that your dreams will be attained. Perhaps they will not come as soon as you may like, but they will come.

Merry Christmas!

Ho! Ho! Ho! Are You Ready For Christmas

Every year Christmas comes as a financial shock (and burden) to many who are unprepared for the annual holiday even though everyone knows it is coming.  Judging by the calendar today, it soon will be here. Christmas should not catch us off guard. Here are some C-H-R-I-S-T-M-A-S tips to prepare you.

 

C H R I S T M A S

C – Create a Christmas list and budget early (now is a good time but preferably January).  Write the name of each person and set a price limit.  Tally up the total and revise the list if the budget is significantly high.  Discuss Christmas gifting with family members and friends.  Set protocol in regards to price limits, the concept of exchanging names, and conditions such as buying only for children and excluding adults.

H – Hunt for an appropriate gift for each person on your list. Once you know what you are buying, scout for the items all year around.  Ensure you are checking your list more than twice.  Keep your eyes open when you go on your regular shopping excursions.

R - Routinely “stash away cash” from each pay cheque to save for your Christmas expenditures.  Setting up automatic transfers to a separate “Christmas Savings” account is a sure way of preventing you from accessing the funds. To calculate the amount of your PAC (Pre-authorized Contribution), divide the amount of your budget by the number of pay cheques in a year.   By saving, you will not rely on credit cards and pay the high interest charges when the credit card balance is not paid in full. 

I - Investigate, investigate, investigate.  Treat Christmas shopping like a scavenger hunt.  Look for the best price (prices) in sales flyers, on-line, and in stores. Chat with family and friends about the items they own and places to shop.  Compare brands, features, warranties, and service. Consider everything which will secure a pleasing purchase. 

S – Stay smart about spending.  Ask yourself, “Will the recipient of this gift love me more if I spend more; and (or) less if I spend less?”  Seriously, if love and appreciation is determined by the cost of the gift, you need to re-evaluate your motives (or theirs).

T – Train yourself to say, “No!”  Do not allow yourself to give in to compulsive shopping.  Regardless of how cute something is; no matter how much Johnny would love a new toy; or “Gee, we only have one grandchild; let’s spoil her”, the answer should still be, “No!”  You are not Scrooge; you are Frugal.  There is a difference.  

M – Make Christmas fun by keeping it simple and sweet.  Keep the joy of Christmas and the intent of giving in proper context.  One gift or ten gifts ~~ maybe, just maybe, one gift would suffice and the other gift could be a contribution to your children’s education savings plan.  

A – Assess, assess, assess! People who are known to start Christmas shopping early in the year are also known to spend more than they intend. They simply forgot what they bought.  Is this you? Keep track of your purchases.  Another misconception is every child should receive gifts of equal monetary value.  No one except you will know how much you spent on a gift for one child as opposed to another.  Don’t make up the difference by buying more presents to ensure the purchases are equal.  You can’t compete with that logic.     

S – Stick to your Christmas Budget.  In the end you will be glad you did, for the simple reason that you will be stress-free.   Always remember: once this Christmas passes, you should start preparing for the next. 

From the tips above, you may take what you need and leave the rest.  If you do a great job, you may have enough money to buy yourself a Christmas present.  Nevertheless, enjoy the holidays with family and friends.  For this is the true gift of Christmas.