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Family Business Matters       10/29 04:58

   The Promise and Peril of Family Financial Help

   When contemplating how to help a family member financially, consider the 
following tips so the blessing of assistance doesn't become a source of severe 
conflict.

Lance Woodbury
DTN Farm Business Adviser

   Agriculture is a capital-intensive business. Land, with any significant debt 
against it, is challenging to cash-flow. Equipment is expensive, and parts are 
not cheap. Labor rates and family living expenses are high. Inputs or feed need 
to be purchased well ahead of any revenue from crop or livestock sales. And, 
the markets and weather conspire to make some years difficult to generate much, 
if any, revenue and net income.

   It's no surprise that young people considering a career in farming or 
ranching are intimidated by the financial investment. It's also no surprise 
that older family members, or those with revenue from other sources, want to 
provide financial assistance to family members.

   Financial help by family members takes several forms. It may be an outright 
gift of cash or a transfer of land, or payment of crops or livestock in 
exchange for work. More often, it comes through reduced land rent or the use of 
equipment.

   While such financial assistance is a blessing for many in agriculture, 
mixing money and family members in business can be a source of severe conflict. 
As a partner in a CPA firm, I see firsthand how conflicts over financial 
matters can tear a family apart. When contemplating how to help a family member 
financially, consider the following tips.

   -- Be transparent. I often say, "To be a good family business, don't act 
like one." What I mean is that any financial assistance should be discussed by 
those participating in the enterprise, much like it would be in a business 
where people are not related. Loans or gifts should be clearly understood to 
all, so the contribution is not taken for granted and does not foster a sense 
of entitlement by the recipient. Everyone knows exactly what form of assistance 
has been provided and how it was delivered.

   -- Write it down. Another phrase I often use: "In the absence of a good 
story, people make one up." If the various methods of financial assistance and 
the amounts are not documented, over time, people develop differing 
recollections, or "stories," about what exactly was done and when it happened. 
Putting the arrangement on paper today and making sure the affected 
participants have copies of the same document help to keep the record straight 
about how family members offered, and benefited, from financial assistance.

   -- Clarify the terms. One of the benefits of being family members in 
business together is the desire to help without necessarily expecting something 
in return. This happens financially in the form of outright gifts, loans with 
favorable terms, debts forgiven or reduced rents. But should it last forever? 
How much assistance is needed, and how long is it expected? To prevent 
misunderstandings, discuss and document the terms of any financial assistance 
between family business members.

   -- Educate the family. Some of the most gut-wrenching family conflicts 
happen over inheritance expectations and decisions, and they often have roots 
in how different siblings benefited from their parents' financial help earlier 
in life. Consider having family meetings or sharing the documents around 
financial assistance so everyone in the family, and not just those in the 
business, understand what transpired.

   One reason such information is not shared earlier is fear of conflict, but 
keeping the information hidden does not prevent the conflict -- it only delays 
it, leaving time for assumptions to flourish.

   If you anticipate difficulty, enlist the help of your accountant, attorney, 
financial adviser or a facilitator to help guide the discussion.

   Family financial assistance can be a blessing. By discussing and documenting 
the assistance and its terms, then educating the broader family, you can 
prevent such financial help from also becoming a family curse.

   Lance Woodbury can be reached at lance.woodbury@pinionglobal.com  

    




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