Page 10 - Walking the Wire

CASE STUDY
IT’S NEVER TOO EARLY TO LEARN THE ROPES
SITUATION
Harry and Meg have been running a dairy farming business for 30 years, inherited from Harry’s father.
It is the second marriage for Harry and Meg, and they both have children from their first marriage, but no children from their marriage together.
Harry’s son, Jim, has been employed in the business for about five years, but is not involved in the financial side of the business, and has no understanding of the cash flow or the liabilities of the business.
Harry is diagnosed with cancer and must reduce his time in the business and, due to treatment, is likely to have to exit the business altogether. Harry and Meg have established off farm assets and have sufficient capital to support themselves without relying on the farm, but Jim will need to refinance liabilities to take over the business.
WHAT HAPPENED?
Jim is abruptly introduced to the financial side of the business and decides that he is not prepared to take on the level of liability and the business risk involved, and would rather leave the dairy to go and manage a beef cattle property.
In this situation, the parents had planned for the capital they would need in retirement to some extent, but did need further advice, because of Harry’s medical issues, in respect of the amount of capital that would be needed to appropriately support them.
There was no identification of Harry, Meg’s and Jim’s wants and needs or education around the business to guide transition.
CONSEQUENCES
The business remained viable, notwithstanding these issues, but because Jim had never been appropriately introduced to the accounting side of the business, and had had no involvement in management, nor any training in business management skills. As a result, the idea of taking on the risk of a business was more than he was prepared to deal with at that time.
This family was in a financial position that would have made the succession of the business very achievable. However, a lack of clear communication led to some unexpected consequences that put the business in serious risk.