More farmers than ever are entering all kinds of partnerships… with other farmers, with a business in town, with a multitude of other entities. Are you ready to join them?
If it seems that you’re hearing more about farmers entering business partnerships of various kinds, you are right. And it isn’t just in your neighbourhood. It’s all across the country.
Whether it’s a loose partnership with another farmer to share resources, or it’s a new venture operating from the farm, or even an off-farm business with a non-farmer, the potential benefits of partnerships are clear.
Before you enter into a formal business partnership, however, you need to be ready. How can you be sure you are good partner material? And how can you, in turn, tell if the person you have in mind is likely to make a good partner for you?
Country Guide went to Rick Gendemann, chartered professional accountant and partner at the Manning Elliott accounting and business advisory firm in Abbotsford, B.C., for his insight in the form of this 10-question true/false quiz. All set? If you’re ready, ask yourself whether…
1. You are entrepreneurial: True
You must be entrepreneurial to start and continue a successful partnership. The bottom line? You’re the type of person who gets excited about building a business and you are willing to go to great lengths to make that happen. “Many farmers have started or inherited the farm and may never had to build a business beyond its current operating size,” says Gendemann. “When farmers want to enter in a business context outside the farming arena (or within it in some circumstances, i.e. with a new product or service such as custom spraying), they have to realize it will involve going far beyond just being a good business operator… You can be a great operator, but do you have the drive to build something new?”
2. You aren’t so worried about time, it will take what it takes: False
Farmers who make successful partners fully understand where their skills do and do not lie, and which skills they’re willing to learn. They also understand the limitations of their time and energy. Because farmers already have their farms to run, Gendemann says, they had better make sure they can delegate sufficient time to the new business if they want to partner with someone in a new venture. “Determine how many hours a day will be needed, and whether you first of all can manage that, and whether you actually want to commit to that,” he says. “It might be more than you think. You have to be fully prepared for the impact.”
3. You understand how different it will be: True
You are only ready to be a business partner, says Gendemann, if you fully realize that you will be accountable to your partner as well as to yourself. Farmers are used to only being accountable to themselves, their farm and their families, he notes, and a partnership is different.
4. The reality of a business partnership is clear to you: True
Gendemann points out that partnerships involve delegation of tasks, give and take, and trust. “You really can’t be second-guessing your partner,” he observes. “If you get a knot in your stomach and your stress level is going up thinking about working with someone else in a trusted relationship where time and money are on the line, maybe a partnership is not for you. Both of you need to be comfortable or the partnership is unlikely to be successful. Sharing the leadership is required.”
5. You aren’t willing to take risks: False
In any business venture, partnership or not, there will be risks. Gendemann explains that while some risks are easily identified, no one has the crystal ball that can tell you what’s really going to happen in the future. There may be hurdles that were not envisioned and you need to be prepared to act. There could be risks that are personal (e.g. health issues, family changes), marketing (e.g. supply and demand for your product or service) and financial (e.g. creating cash flow).
6. Having an exit plan before you start makes a lot of sense to you: True
“At some point, either of you may want to leave or be forced to leave the partnership,” Gendemann says “For sure, there will come a time where the partnership will come to an end. You need to think through which events may cause either of you to consider exiting, and create an exit strategy. How will that strategy be carried out, not just financially? Is one partner perhaps prepared to buy the other out? Are you willing to borrow to do that? Or will you dissolve the partnership and sell the assets? If one of you passes on, what will occur? You may be very happy to work with your partner, but you may not be keen to work with his or her spouse.”
Sometimes partnerships have a long run, other times not so much, but Gendemann stresses the need for a plan to unwind it, without that being adverse for one or both of you. “Build in those mechanisms at the start,” he advises, “when things are good.”
7. You are an effective communicator: Very true
“You are going to have conflict, but that’s okay, and it’s important to have conflict resolution mechanisms in place if required,” he explains. “What you think you and your partner should do about a particular situation and what your partner may think may be very different, and if you can’t sort it out, you need a way to make the decision. Maybe you plan to bring someone in to help you work through it. A partnership really is like a marriage, and you have to be willing to trust, have a healthy respect for one another and be willing to listen and compromise.”
8. “Adaptable” is your middle name: True
At least, it’s a trait you aspire to. To be a good partner, you must be open to reviewing and updating various aspects of the partnership on an ongoing basis. “The world is constantly changing,” Gendemann notes, “and a partnership is a working business relationship that has to be managed as that world changes. Depending on the nature of the partnership, sit down at least annually and strategically plan. This will identify whether you are on the same page with everything, and where you differ.”
9. You are comfortable seeking help: True
Seek out a business advisor and, as early as possible, get this person involved in the process to plan the partnership business. Gendemann says you might start with your accountant to give you the general picture, but then you may have to go beyond that level to find an advisor who can help get the business up and running. Go to your existing network to find one with a good reputation. Government outreach agencies which help entrepreneurs are another source. Continue to seek the help of mentors, other entrepreneurs, agencies, advisors, accountants, lawyers, marketing experts, export companies, and more.
10. Documenting all aspects of the partnership at an early stage is definitely a good idea: True
Before you even contemplate how the partnership should be structured, you should identify the resources and skills that you each can bring to the table and document those, along with much more. “People want to rush into how to make the venture happen, get it up and running and the money rolling in, but first, have a discussion of your strengths, assets and what your objectives are for the partnership,” Gendemann says. “What will the venture seek to accomplish? Is it basically a way to cost-share through sharing assets, is it an opportunity to make some income, do you both want to build something of value that you may wish to sell down the road? Document this vision, along with your roles (are you both going to be actively working in the business or just providing assets?), your overall business strategy and how you will share the profits or benefits. Then sign the document. This process allows the situation to become very real.”
Once all this pre-assessment is complete, Gendemann says it’s then a matter of getting good professional help from lawyers, accountants and business advisors on how to structure the business. “It could be a personal or company partnership, a joint venture, or it might involve farm corporations,” he says. “Getting advice from professionals who do this every day is critical for your success.”