For many, agriculture is a way of life, with every facet of living intertwined with the running of the farm. Farmers live on the property with their partners and children, often working the same land as previous generations.
Can farmers make rational, dispassionate decisions about their farm when so much emotion is invested in the business? How can the needs of the family and those of the business be separated? Is this necessary?
These are the questions David Brownhill and his brother and business partner Gordon faced on their family farm. He outlined what he and Gordon did in response to these questions to growers at a recent GRDC grower Update in Nhill, Victoria.
After taking over from their father in 1980 (Gordon returned home first), for 25 years the two successfully produced winter and summer crops, together with some sheep, fat lambs and cattle on their Liverpool Plains farm property. By 2005, however, the brothers were thinking about breaking up their partnership.
“We were great at growing grain, loved getting into technology and had had some very successful years, retaining all profits and investing in farming infrastructure and irrigation systems,” David said.
“By 2005, the individual needs of our families and children were changing, so much so that we decided to split the farm up altogether.”
The brothers engaged consultant Bob Hudson to begin breaking up their property and the family business. As soon as the process began, he advised them to reconsider. Splitting up simply did not make good business sense.
“It became very evident that the separation of the farm was not a good business decision. It was driven entirely for the wrong reasons,” David said.
“Bob helped us to realise that most of our issues could be solved by separating the family from the business, not the business from the business.
“What we needed was fresh thinking to help us sort through our issues but, more importantly, to clarify our business goals and objectives and restructure the way in which we operated. What we needed was a corporate structure for our business. The board was born.”
Bob Hudson and another business person they respected were appointed as non-executive directors and David and Gordon were made executive directors. An independent chairman was elected.
The board met every two months for the first year, implementing the corporate structures and establishing the business plans and roles needed for their farming business. In that first year, the farm implemented a debt restructure, a dividend policy and a financial reporting system and set staff training and professional development plans.
“That first year was a great experience, being challenged by outside thinking and new ideas,” David said. “We tightened up procedures, further developed our reporting systems, cleaned up our banking arrangements.”
Four years on, the corporate structure is working well, with the board meeting quarterly and expansion on the horizon.
“We’ve established a debt structure for our business that allocates assets to security, not just lumping them in together and we have ensured bank structured loans for best pricing. Board papers are distributed to all family members who attend only meetings relevant to them, adhering to our constant mantra to operate at a business, as opposed to an emotional level.
“The house keeping has been done, and now we are looking for expansion opportunities. Individuals have been allocated assets to borrow against so all business members can make their own investment decisions. This independence and freedom of choice is important.
“However, any expansion needs to be approved by the Board and done in conjunction with our 60/80 debt to equity rule. That is if it’s below or near 60 per cent we pull in belts and save, alternatively when it’s 80 per cent or more it’s time to expand.
“This ratio works for us, but I would advise others to use a method that suits their property type, risk/growth profile and their overall business,” David said.
David understands that the only constant in business is change, but is confident that the financial systems and culture for learning will stand the business in good stead.
“Nothing is forever but at present, we’ve got the financial systems and business structures to continue to succeed.
“This board structure may not be for everyone, but I would stress to farmers to make decisions for business, rather than emotional reasons.
“I urge farmers to use outside advice, because often it takes a fresh set of eyes or an outside perspective to help identify what is sound judgement backed by business acumen and what is simply emotional baggage.”
