After six long years of debate, soul searching and stops and starts, the Moes family is hoping to sign final transition plans this summer. The hang-ups have been many, and there are still some knotty details to work out. But Greg and Jim Moes, along with Greg’s sons, Scott and Jacob, and Jim’s son, Matt, have reached consensus on how the 2,000-cow dairy operation that sits 10 miles east of Watertown, S.D. will be transferred.
The transition will be phased in over 10 years, at which time Scott, Jacob and Matt will each own 25% of the business, and Greg and Jim will retain just 12.5% each. Greg and Jim will also still retain ownership of 1,000 acres of land, which they will continue to lease to the operation.
“The million dollar question for Greg and Jim is whether, after this 10-year period, they will be able to sleep at night under this plan,” says Tom Linngren, the family’s attorney. “If they can, the rest is just details.”
There have been a few sticking points. For one, an operation of this size has a valuation of $16 million to $18 million, depending on market conditions. Bringing in next-generation partners, who have little to no equity other than sweat labor, is a huge challenge. Even though the dairy has been profitable, particularly in 2014 with record milk prices, it’s not realistic to expect profits alone to capitalize such a large investment. About the only practical way for it to be done is for Greg and Jim to gift equity to Scott, Jacob and Matt as they accrue years of service to the operation. And that wouldn’t be possible if all five didn’t commit to a long-term
vision statement for the operation, says Joe Kluender, with Farm Family Dynamics, Mankato, Minn. Kluender serves as the Moes’ Farm Journal Legacy Project consultant. “The mission and vision statements will provide a guide for every strategy—and action—especially when there are disagreements among the members,” he says.
First and foremost, all five want to preserve the farm legacy created by John and Elizabeth Moes, who are Greg and Jim’s great-grandparents. They homesteaded the farm in 1884. Scott, Jacob and Matt represent the fifth generation of Moes to farm this land, and the hope is that a sixth generation will have the opportunity to continue the Moes 131-year legacy. To do that, all five have agreed to work in a collaborative, respectful way in making decisions. That will mean Greg and Jim must give up increasing amounts of control.
Even five years ago, when Greg and Jim started discussing the transition through Farm Journal’s Legacy Project, they were reluctant to relinquish decision making authority. Both were still in their 50s and were working hard to expand the dairy to its present 2,000 cows.
Scott and Jacob had only recently returned to the farm, and were still in their late 20s or early 30s. Matt was not yet part of the operation. And none of them really had the business savvy to make major business decisions—at the least in the eyes of Greg and Jim.
“Dad and Jim are now more willing to let go of control, and that wasn’t true 10 years ago,” Jacob says.
“Now, they’re more willing to explain the reasons why we do things certain ways,” Matt adds.
Both Greg and Jim are now in their early 60s, and they realize they need to share their management
experience with the next generation. Plus, Scott, Jacob and Matt have matured and are showing
longer-term commitment to the operation. “While in their 20s, the boys were coming and going into the
operation,” Jim says.
Details have yet to be finalized, but the plan is to transfer equity to the boys in exchange for years of service. The key is that the boys must show a meaningful contribution to the operation with five years of service before they receive any equity. The boys will accrue about 2% equity in the business for every year of service up to 25%. If they leave prior to 10 years of service, they will forfeit their accrued equity, and it will be divided proportionally among the remaining members.
Once the transition plan is finalized and signed, all five will serve on the MoDak Dairy board of directors. At the beginning, just Greg and Jim will be voting members. Still to be worked out is when Scott, Jacob and Matt will be eligible to vote.
Voting is critical because Scott, Jacob and Matt might have different priorities for the operation and how the company’s dividends, or profits, are distributed. For the past 40 years, Greg and Jim automatically plowed profits back into the operation to grow the business.
Even the past year’s mega-profits, which exceeded seven figures, were used to pay down debt. In the future, Scott, Jacob and Matt might have other ideas how those dollars should be spent.