Edition #24

January 13, 2024

Good morning and welcome to the Braintrust Ag newsletter. We’ll warm you up by getting your brain pondering on this frigid morning.

A couple notes to begin:

• A big THANK YOU & WELCOME to the 8 new members who have joined in the past week. That puts us at 149 members as of me writing this on Friday… can we hit 150 by the end of the day?

  • Become a member by clicking here.

• Let’s collectively take a moment and offer some prayers and well wishes to those livestock ladies and gents who are fighting this cold snap.

Alright, let’s get to the topics that will help you build a strong, sustainable agri-business.

-Clint

Here’s what we have this week:

• 🕴 Beneficial Ownership

• 🌱 Seeds

• 🚜 Equipment Transfer

• 📅 Upcoming Events

• 💸 Cost Centers → Profit Centers

• and more…

THE BIG IDEA

Transparency in Farm Entities

In an effort to prevent the use of shell companies for money laundering or tax evasion, Congress established the Corporate Transparency Act. This creates a comprehensive database of the individual owners behind corporate entities. And it affects many common farm legal entities, such as LLCs, LPs, and Corporations. Essentially, any entity that was formed by registering with your secretary of state.

The gist is - if you own or control at least 25% of a company, you'll most likely have to file a "beneficial ownership information" report with the federal government. And no, there's no exemption for small, rural, or farm entities.

The Financial Crimes Enforcement Network (FinCEN) is responsible for gathering this beneficial ownership information through the filing of reports (BOIR). And it’s serious stuff, as FinCEN can impose severe civil and criminal penalties for non-compliance, such as up to $500 per day a violation continues and up to a $10,000 fine + 2 years of imprisonment.

Now that we’ve been properly alarmed, here’s some key points:

• Corps, LLCs, and other entities formed with the Secretary of State must file the report, unless exempt. (there's 23 exemptions) 

• Reports are due between 1/1/24 and 1/1/25 for existing entities

• Companies formed after 1/1/24 have 90 days to file.

• Reports must include company details: legal name, address, EIN

• Reports must include beneficial owners' details: legal name, birthdate, home address, photo ID

• A beneficial owner is ANY individual who, directly or indirectly exercises substantial control over a reporting company; or owns or controls at least 25% of the reporting company.

• That means CEO, CFO, manager, etc who may not own the company will need to file as well.

There's basically 5 steps to take:

1. Determine if your entity is a reporting company

2. Determine who the beneficial owners are

3. Gather beneficial ownership information

4. File the initial BOI report

5. Maintain compliance with any ownership changes in the future.

It's just one more thing small business owners are mandated to comply with. So, if you have an LLC, LP, C-corp, S-corp, or don't know...

I'd recommend speaking with your attorney and/or tax person to clear up any questions you may have.

SEEDS

• 🐌 Fresh Ideas: If you’re looking for small farm ideas that might be out-of-the box thinking to earn some dollars, here’s a list of ideas that might get your wheels turning.

• 🚪 Back Door: Temple Grandin, famous for her livestock handling approaches, offers her advice on ag job seekers and ways to get in proximity of your dream job.

• ⚖ Foreign Land: A common concern in rural America is foreign ownership of land. While China often is the country that comes to mind, they’re not the largest foreign landowner. Here’s a summary of the foreign ownership.

• 🔟 The Tops: Here’s a list of the top 10 stories from 2023 AgWeb put out. (no, I have no affiliation with them but if they want to send me a pile of money for linking their article, I’m game)

• 🤝 Successor Needed: This first-gen Ontario farmer is frustrated with land prices and regulation and is seeking a move. I do not suspect he is alone in his woes.

Become a member today for lifetime access to everything. It’s a small one-time cost with NO recurring subscription.

FARM TRANSITION

Often, the retiring family member(s) have the goal of transitioning equipment to the next generation, but don’t want to just have an outright sale. That would provide too much income and put the owners in a poor tax position. Also, it may not be feasible for the younger generation to outright buy all the equipment at once.

There are multiple different ways to transition farm equipment, and this publication does a great job of explaining the tax impacts of the various methods.

One example I recently came across is this:

An uncle is phasing out of farming and transferring equipment to his nephew.

Here’s their strategy:

Step 1. List all equipment to be transferred

Step 2. Get equipment appraised

Step 3. Discount each piece by 10% (family discount)

Step 4. Draft an equipment lease agreement w/

• Annual lease payment

• Option (but not obligation) to purchase specific items each year

• Future lease payments reduced by equipment purchased

• Flexible on items purchased, to correspond with farm profits each year

• Upgrades: Uncle will sell item & nephew will buy upgraded item outside the lease

Step 5. In 5-7 years the lease is terminated if/when all equipment has been purchased.

As an example, Nephew has $200K income he'd like to offset, so before the end of the year he identifies a tractor and field cultivator he'll purchase. He and Uncle execute a purchase agreement for those two pieces, and next year's lease payment is reduced by a corresponding amount.

This does 3 things:

1. Ensures Nephew can use equipment to farm, while giving him the option to buy.

2. Spreads out sales for Nephew’s cash flow & Uncle’s income tax issues.

3. Memorializes their handshake agreement should something happen to either of them.

If there's a bad year, he doesn't have to buy any equipment, he'll just have the lease payment expense. Maintenance costs will be covered by the nephew, and major repairs by the uncle.

I’d discuss with your tax person and then have your attorney draft up the lease, if this is something you’re interested in. Just another tool in the toolbox!

UPCOMING EVENTS

1. Angie Setzer is going to be our next Expert Q&A guest! She’s a cash grain merchandiser who works one-on-one with farmers to help market their crops. You can find out more about her services at Consus.

2. Our next SOIL Gathering will be Thursday, January 18th at 12:00 CST.

   • Topic: Estate Planning Strategies

You can access the Zoom links for all upcoming events on the Events Page.

COST CENTERS → PROFIT CENTERS

For all their many faults, one of the things many big, publicly traded companies are good at is turning their cost centers into profit centers. An example is Walmart and Amazon providing 3rd party fulfillment services to other businesses; where they took what used to be a cost (logistics & warehousing) and now provide that as a profitable service to other companies.

Many achieve this through what’s known as vertical integration. Not only are they trying to reduce costs along the supply chain, they are looking for opportunities to generate revenue on things that were once merely expenses.

I was recently speaking with a guy who manages a feedyard for one of the giant outfits. This company appears to be pulling the cost centers → profit centers page out of the big companies playbook.

The vast majority of their revenue (and profit) comes from feeding cattle. Hundreds of thousands of head each year. But, they also have other side-businesses (often referred to as subsidiaries) that are affiliated with the main company.

• Farm Co.

  • An obvious one, as they can now grow their feedstuffs vs buying.

• Fuel Co.

  • They source & transport fuel for their various feedyards as well as outside customers.

• Irrigation Co.

  • Compliments the Farm Co. and services other clients with irrigation needs.

• Feed Pelleting Co.

  • They were pelleting feed for their own cattle, so why not offer those services to local feed mills.

• Manure Hauling Co.

  • Service their feedyards as well as other feeders in need of their services.

• Trucking Co.

  • Hauling liquid feed and cattle for themselves, but also providing those services to others.

Now, these subsidiaries only provide a fraction of the overall revenue to the main company, but they’re not designed to be the big moneymakers. They’re designed to have the feedyards as their #1 customer, and if they can offset some of the costs by hiring out to others, that’s just adding to the bottom line.

I’m not convinced we need to be huge publicly traded companies or even large privately held companies to use some version of this model.

The gist is, what are large cost areas in each of our ag businesses that may be pain points for others? Identify where we could invest in the assets to solve our problem PLUS make a better return on that investment by offering those services to others in the industry.

I’d love to hear about more examples people have of folks turning cost centers into profit centers.

MEME OF THE WEEK

That’s a wrap, folks.

Until next week, thank you to everyone involved in ag. Come engage on the new platform & let’s grow profitable ag businesses together.

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DISCLAIMER: All content, communications, and resources provided by Braintrust Ag, its principals, operators, or members is intended to merely be educational and entertaining. Nothing published by Braintrust Ag should be relied on as legal, financial, investment, or other professional advice. Investments and legal matters involve substantial risk and are not suitable for all individuals. It is recommended to enter into a client relationship with an ESP for obtaining professional advice.