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This article was originally published in Western Producer.
Multi-owner farms are nothing new.
For years we have seen two and sometimes three generations of a family farm together.
Grandpa and Grandma often still “farm” a few acres or have a few cows, Mom and Dad will often have the lion’s share of the operation and a son or daughter will be just starting out with a small operation of their own.
Now we are starting to see more farm business relationships be-tween unrelated third parties who wish to work with others to gain economies of scale and, perhaps, labour advantages.
Most joint farming arrangements (family or third party) have historically been rigidly structured around “what’s mine is mine, and what’s yours is yours.”
Each member will take income from the crop off their own land or calves off their own breeding animals. However, this can cause problems. To illustrate, let’s focus on a multi-owner grain farm.
What happens when everyone’s wheat is ready to harvest at the same time? Whose field do you go to first? And if each member has a third of the acres, do you keep rotating whose fields are harvested until they are all done?
What if that means you are moving combines all over the rural municipality and spending more time transporting equipment than actually harvesting?
And what happens when one member gets their wheat off first and it grades No. 1, but then it rains for a week and the rest of the members are stuck with feed wheat? Grandpa is right upset because his wheat is now worth less money. Sound familiar?
Farm operations are becoming larger and more money is involved. Failure to agree on similar goals can cause some members to lose money while others profit, which can break down relationships, affect family harmony and create tension among all members.
What if we could take all that out of the equation?
Sharing in the overall profits of the farm is one way to do that.
If all the owners of the farm are working toward one goal, which is to make the overall farm as profitable as possible, then decision making becomes much more obvious. When all are sharing one pot, who cares which crop is sprayed first or seeded first or harvested first.
The decision becomes more about what is the most efficient and effective way to get all the work done and what actions will maximize overall profit.
The profits (which in many, if not all, cases will be higher for the overall operations) are calculated at the end of the year and divided be-tween the members.
This results in more equitable and fair participation in the success (or failure) of the farm and a much more enjoyable holiday dinner.
What we are talking about is goal congruence: the concept of having everyone steer the ship or drive the bus in the same direction.
It will make your farm more successful, increase harmony, avoid conflict and provide significantly more flexibility when succession issues need to be addressed.
The keys to making this work for your farm include proper planning, communication and trust. Formalize the planning process around this and ensure you get documentation. Discussion and agreements are critical so that everyone understands what is expected of each participant. A good business adviser will help steer you though the process.
To learn more about establishing goal congruence on your operation, contact Stuart Person at 306.765.8581 or
[email protected], or your local MNP Advisor.
Related Topics:Farmers; Business Structures
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