A number of potential risks to agricultural businesses have been highlighted in a recent survey by the Rural Agriculture Group (RAG UK).
Armstrong Watson’s respondents, from across the north of England and Scotland who run livestock, dairy and arable farms, highlighted the future of subsidies among their top three challenges, which also included climate change and the environment as well as cashflow.
From a financial planning perspective, the survey also found that, of our farming contacts, only 32% had succession plans in place, 53% either don’t have a will or need to update their existing will, while a further 63% do not have either a shareholder/partnership agreement in place or one that is up to date. Additionally more than half of the respondents, 58% of which are aged 60 or over, have no Power of Attorney arranged.
So why are these findings important? Well, as for any business owner, it is important to safeguard your business for the future. The long-term financial security of any business is an essential and not a ‘nice to have’. Unexpected events can have a dramatic impact on the long-term security of both your business and your employees.
With this in mind, there are maybe some key questions for many farm owners to consider, such as:
If your farming business is a partnership it is important to think about how would you or your partner afford to buy the other partner’s share of the business if they died. One of the key risks of a business partnership is that one of your partners may die, with his or her share of the business passing to someone else. That individual may have no interest in the business or may have a different viewpoint to your objectives. A partner who suffers a serious illness may want to retain the option of continuing in the business or be compensated for their exit from the business.
The same issues exist if your farming business was a limited company. Making sure your family is compensated for the shareholding and that the shares can be passed back to the business can mean the business continuing to trade.
It may be that a farming business has a director’s loan account. This is where a director has lent money to the company to support initiatives. This could include initial start-up costs, funding expansion or where a director has left dividends within the business to be used as working capital. Essentially, it’s a debt owed by the business to the director and would need to be repaid on the directors’ death, if demanded by their estate. But what if the business could not afford to pay this back? Will the other directors be forced to take out a loan to cover this? What if they could not raise the money?
Key people, within all businesses, are also vitally important to help generate profits and ensure smooth and effective day-to-day operations. In nearly all cases for most farming businesses that is the owners. If you consider the problems the business would face if you, or somebody key, died or were to become critically ill. How much would profits suffer? How long would it take to find and bring someone new in?
Finally, the survey found more than half the respondents either do not have a will, or an updated one, or a Power of Attorney in place. Given that the majority of respondents were aged over 60, this is something that needs addressing. Regarding a will, everyone should have one, but it is even more important if you marry, have children, you own property or have savings, investments, insurance policies or you own a business. Dying without one can cause many issues especially if you want to ensure your assets pass to someone you want to receive them. A Power of Attorney allows family members to deal with a person’s finance if they lose mental capacity.
It is important to discuss and evaluate the potential unforeseen risks. With the right knowledge and support, all businesses, including those in the Agricultural sector, are better placed to make the right decisions in protecting themselves against certain unexpected and in many cases unforeseen events.
At Armstrong Watson, our Chartered independent financial advisers and can discuss and advise on all aspects of financial planning for farming businesses, including key areas such as protection, retirement and Inheritance Tax planning. All our expertise is under one roof with our Financial Planners working alongside our Tax advisers to ensure the right advice and support is at hand for agricultural business owners.
This article featured in Insight, our quarterly financial planning and wealth management magazine. To read the latest issue or subscribe to future editions click here.