As we return to the office for the New Year, it’s a great time to plan financial strategies and budgets for your business. As a business owner, it can be very useful to also think about succession planning. This is particularly important for farmers, a group of business owners who can often be overlooked.
Farming businesses have many of the same characteristics of any other business such as having to carefully managing cash flows, finance loans and bank overdrafts. Farming owners must look after their employees and be mindful of the myriad of legislative requirements and responsibilities connected with being an employer, as well as dealing with suppliers and subcontractors while managing all the in-put costs. The costs must then be weighed up with the quality of the goods and services supplied.
There are additional considerations when running a farming business. Many are family businesses with two or three generations still involved in the farming operations and living on the farm.
Succession planning is vitally important but also one of the most difficult areas to get right for many family farming operations. This is because it is extremely common that not all of the children end up being involved in the farming business. Therefore, it is a matter of striking the right balance to leave those who will continue the farming operations with appropriate control, asset protection structures and financial stability. It is equally important to provide for those who will not continue on the farm whether that be by choice, marriage or other reasons.
Mitigating the Weather
Farming, unlike most other business is totally dependent on and affected both directly and indirectly by the weather. The direct effect is obvious in that too much or too little rain at the wrong or right time can make the difference between a bumper harvest and a disastrous year. Rain isn’t the only factor because frost, winds, storms etc can also result in the difference between success and failure.
Because farmers sell their produce both nationally and internationally the weather patterns in other states and countries affect the prices that our farmers receive. Those states or countries could also be experiencing good, bad or exceptional weather patterns. In other words, the laws of supply and demand feature strongly in this sector of the economy as well. This is the indirect effect that I referred to earlier.
The Tax Laws can Help
There are several provisions in our taxation laws that are specifically designed to assist farmers. These include accelerated depreciation and other deductions to income deferment measures. The effect of these are to assist farmers to even-out their incomes considering the variability and volatility in the incomes of the farming enterprises. Farmers must ensure they take advantage of these provisions, but also be aware of the associated restrictions and limitations to them.