Working separately but still together

4 min read

The following fictional case study was created by MNP.

Anna and her older brother, Gabe, grew up on the farm, learning tasks ranging from planting to harvesting. In their early twenties, they were faced with the unimaginable: their parents passed away without warning. Once the initial shock subsided, they sat down to figure out how to move forward. Relying on their shared experience, they divided responsibilities and took on ownership and management of the family’s wholesale, retail and pick-your-own vegetable farm.

The first couple of years were tough, but they learned from their mistakes and made progressive moves to adopt new packaging and produce-tracking technology.

New marriage, fresh energy

Four years later, Gabe married his long-time girlfriend, Ella. She was a physiotherapist with a busy practice. She fully supported the farm, but her schedule prevented her from being involved.

The following year, Anna married Robert. They met on vacation, and within six months, they married. Friends and family were surprised at how quickly the relationship moved forward, but they were happy.

Although from the city, Robert was fascinated by the farm operation. With his background in sales and marketing, he felt he could make a solid contribution. Anna was excited to work alongside her new partner and loved his enthusiasm.

Diverging visions

Initially, the new dynamic seemed to work. Gabe was responsible for agronomy and production. Anna oversaw employees and the roadside retail and pick-your-own business. Robert gravitated to wholesale opportunities and found new business. He became obsessed with the idea that the farm process produce into boutique products to sell in urban specialty stores.

Cracks started to appear in the working relationship between Gabe and Robert after about a year and a half. Robert was spending money on processing facility designs and new product ideas. Staff complained that Robert assigned them special project work without consulting Gabe or Anna. A power struggle was brewing between Robert and Gabe, with Anna caught in the middle.

Negotiating a new path forward

It eventually reached a boiling point. After many arguments and discussions between Anna and Gabe, they decided to explore options for dividing up the business. Working with a lawyer and accountant, they began exploring ideas that might enable independence while maintaining opportunities to work together. Anna wanted to preserve her relationship with Gabe and ensure the extended family wouldn’t fall apart. Gabe agreed and admitted that he saw merit in Robert’s ideas, even though their personalities and management styles didn’t mesh.

Robert presented a plan that would see Gabe buying out Anna’s share of the farm business. He also offered a memorandum of understanding whereby Robert and Anna would form their own company that would be allowed to purchase wholesale produce from the farm, process and package it, and market it under the family’s well-established brand. These products would be sold in urban specialty markets and would also be available for purchase at the farm’s existing roadside retail stores.

To put it simply, Gabe would run the family business as he saw fit but maintain a relationship with Anna and Robert that would expand production and sales. Gabe wouldn’t be at risk if Robert’s vision failed to gain traction. Anna knew she would be caught in the middle, acting as a bridge not only between the two businesses, but between two of the most important people in her life.

Complexities of the split

Gabe’s primary concern with the arrangement related to the use of the family farm’s brand, which had been three generations in the making. They eventually agreed that if certain products didn’t fit the brand, they would be sold under another brand.

The details took some time to finalize. The first issue was to determine the value of Anna’s shares. Unlike some farms that derive their value from real estate and equipment, the company’s brand, loyal customer base and retail presence all contributed to its value. Professionals were engaged to provide an accurate and unbiased assessment.

Most of the assets were to remain with Gabe in the existing farm corporation but Anna and Robert’s home was on a farm owned by the corporation. They also needed land to build the new plant on. Managing real estate taxes effectively proved to be one of the more complicated aspects of the reorganization. The tax rules for splitting a corporation owned by siblings are significantly more complex and restrictive than those for a corporation previously divided by their parents.

Financing was the next hurdle. Gabe needed funds to buy out Anna and Robert, and Anna required more capital to proceed with their plans for a new processing facility. Both parties put effort into compiling cash flows to assist in this planning.

They all knew they were walking a tightrope. Several professionals referred to the complexities associated with managing the overlapping and sometimes conflicting needs of the two new companies. They hoped two complementary ventures would create better opportunities for business success and family harmony.

Balancing business growth, family harmony

Anna and Gabe’s story highlights the importance of proactive planning, open communication and professional advice when navigating transitions in a multi-generational farm business.

Starting early can make difficult transitions easier. Regular business meetings, a clear business plan, and written agreements on innovations or side projects give everyone a roadmap and a way to revisit decisions as circumstances change.

These tools don’t eliminate conflict, but they create a structure for handling it, helping families protect both the farm and their relationships when visions diverge.

MNP is a leading national accounting, tax and business consulting firm in Canada.

Working with family Legal agreements