Managing Farm Risk

Like most privately-owned businesses in New Zealand, farms are critically dependent on a few key people.  And yet farmers, otherwise so focussed on anticipating and managing risk, admit that they tend to downplay the possibility — and potential impact — of being badly injured or falling seriously ill.

Preparing a Farm Resilience Plan

Understanding that unexpectedly losing a key person could have far-reaching implications, farm owners can make plans to limit the impact such an event could have…

Operational  Plan

Start by assessing the potential impact on the farm of losing key individuals. Often, many of the operational processes that really make a difference to the farm’s performance are not documented. Identify what can be done now to reduce the impact and what contingency plans need to be implemented  to increase the farm’s resilience:

• Document farm operational processes
  
• Develop a response plan to the loss of a key person
  
• Improve the financial strength: capital and cash flow
  
• Improve the governance
   

Shareholder Plan

Think about what must be put in place to ensure a trouble-free future change to the farm shareholding. This includes addressing the:

• Constitution
  
• Farm owner buy:sell agreements
  
• Farm valuation
  
• Share purchase funding
  
• Shareholder employment contracts

Succession Plan

Start planning for the succession of the farm:

• Determine who the successor is
  
• Get advice about the farm ownership structure
  
• Work out the ‘off’ farm’ retirement needs
  
• Understand the succession funding plan
  
• Develop contingency plans to cope with a major disability or premature death

Estate Plan

Ensure that in the event of the incapacity or death of a key individual the necessary financial matters can be easily attended to. Make sure that estate planning is up-to-date, with appropriate:

• Powers of attorney
  
• Wills
  
• Memorandum of wishes
  
• Property relationship agreements
  
• Trusts
  
• Guardianships
   

Insurance Plan

Obtain professional advice to assess the financial resilience of the farm and determine what level of financial risk cannot be managed and should be transferred to insurance:

• Insurance for the key individuals
  
• Insurance for the farm enterprise
  
• Insurance for the farm owners
  
• Insurance for the family