Human Resource Risks
A farmer must be prepared for any misfortunes or dire circumstances that may occur on a farm. The best way to prepare for emergencies that may occur on a farm is to have a plan. Estate planning is necessary in order to prevent chaos in the event of a serious injury or illness. Another useful risk management tool is insurance. A farmer should have insurance that protects the farm from loss of members and from liability.
Proper training goes hand-in-hand with prevention of unreasonable risks. Proper training with dangerous equipment and chemicals, and transporting hazardous wastes is essential when considering the safety of the workers and the prosperity of the farm.
Estate planning is imperative in keeping the farm in the family and ensuring that it will not suffer losses in the case of an emergency. Estate planning eases the burden on the family if the farmer becomes physically or mentally incapacitated. Your estate plan should ensure that your assets will provide you with the necessary income and resources upon which to live, ensure that upon your death, your assets go to the people and/or organizations you intended, and should minimize your estate tax, fees, and any associated court costs. Everyone should have an estate plan.
Property ownership: depending on how the property is owned can determine how the ownership is determined upon the death of the owner.
Essential documents for estate planning include:
Will —A will is a legal document which lists instructions regarding the distribution and management of your assets.
Trust— usually established to empower someone else (a trustee) to manage and care for your property for the benefit of your family (beneficiaries). A trust must have three elements:
Types of Trusts
Distribution of Estate Assets
- survivor inherits all
“I Love You” Will- distributes all assets to the spouse
Complex Will- Uses a will to direct property, usually real estate (except personal residence), to the children with the life use of the spouse
Revocable Living Trust- a trust that can be changed, modified or discontinued at any time; they are chosen because assets in a RLT pass outside the probate process; people usually designate themselves as trustees until death
Irrevocable Living Trust- a trust established during your lifetime to save death (estate) taxes and/or establish a trust for beneficiaries
Gifting can be used to:
Federal Estate Tax
Income Tax Issues- when selling an asset, you pay tax on the difference between the selling price and the income tax basis.
Ways to decrease paying a large sum of money due to income tax:
When planning your estate seek good tax and legal advice.
Life Insurance in Estate Planning- can provide needed funds for survivors up the death of the insured.
Along with the will and other documents that are necessary for emergency situations and death, business transfer planning is essential when transferring the farm from one generation to the next. Before transferring a farm from one generation to the next, the son or daughter should experience college or work off the farm to experience different jobs and determine if they truly want to remain in farming.
Factors to Consider Before Transferring the Farm:
The next generation should also have experience in all aspects of the business:
Finally, the parents who are passing the farm down must make sure their business is profitable enough to ensure that there is sufficient funding to support a new farm family and allow for the parents to retire “comfortably”.
Insurance is important on a farm due to the nature of the work that is done. When working with machinery and animals there is always the risk of an unpredictable accident occurring. In order to help to alleviate the financial burdens that go hand-in-hand with such accidents, disability, medical and life liability are useful. Workmen’s Compensation is a type of policy that helps protect both the farmer, his family, and workers from injuries sustained while farming. Under this policy, a worker is compensated for lost time from work due to a work-related injury. Insurance policies can also be bought on the animals to help reduce the risk of net loss due to herd death. Insurance is an essential risk management tool, but you must be aware of what your policies cover and determine which type of policy best suits your farm.
Another important aspect of family farming is communication. Issues dealing with the farm should be discussed openly among the members of the family involved in the business and each member should do their expected chores/jobs. Along with open communication, the family has to be able to continue to successfully operate the farm through the occurrence of emergencies. Having a plan for mishaps and calamities is recommended. Know how you want to allocate your assets to keep the farm prosperous and successful.
Farm worker safety is imperative in maintaining a successful, cost-efficient farm. A farmer should be aware of general hazards on a farm:
US Dep of Labor. Occupational Safety and Health Administration www.osha.gov.
Training farm workers is also important in keeping the farm safe and productive. Pesticide training and equipment training are two important liabilities that can be greatly reduced with the proper training. There should be signs posted in both English and Spanish that give warning and directions when necessary. They should also contain pictures when possible.
Communication is an obstacle that must be overcome when dealing with migrant labor
Proper Safety Equipment should also be available to farm workers upon request and without a fee. Equipment such as:
Pesticides, Fertilizers (Anhydrous ammonia, Ammonium nitrate, etc), Fuels (Gasoline, Diesel, and Propane) all constitute as hazardous wastes. When transporting these materials a farmer must have a security plan which consists of at least:
Risk Management Workbooks;
Estate Planning Series: University of Minnesota Extension Service
So You Have Inherited a Farm: Iowa State University
The Basics of Estate Planning: Cooperative Extension Service, Univ. of Georgia College of Family and Consumer Sciences, College of Agriculture and Environmental Sciences
From Growing Fruit to Growing a Business:
A Case Study in Family Business Development
By Richard Stup
Penn State University
Founder’s Farm has been operated by the Gordon family for generations in the Garden State. Much of that history has been focused on the production of fine fruits and vegetables for the wholesale market. The good soils and favorable climate of the land owned by the Gordons allowed Founder’s to produce fruits and vegetables that could be profitably sold to local retailers for distribution.
Times have changed in recent years and suburban sprawl has become a real challenge for Founder’s Farm. Land prices skyrocketed, driving up the cost of production, but competition from produce imported from out of the state kept wholesale prices steady. As a result, Founder’s Farm was confronted with declining profit margins from their wholesale operations.
But the Gordon family didn’t succeed in the past by letting events control them and giving in to despair. Charles Gordon and his sons, Jeff and Mike, decided to take advantage of the vast increase in their region’s population and shift to a retail produce business. Two roadside markets later they found themselves with a business that was growing faster than they were quite prepared to manage. Profitability wasn’t a problem, but keeping everyone happy and not excessively overworked was a real challenge.
In order to move on to the next level of business success and growth Founder’s Farm needs to master some new human resource management practices. Following is a brief discussion of four useful practices that will help them move on to greater success.
Measuring Performance and Benchmarking
Although it sounds a little callous, labor is a resource for a business just like any other input that is needed to produce a product. Unlike other resources, however, labor can be re-organized, retrained, and developed so that it can do a better, more productive job for the business. Before management can make plans to better utilize its labor it needs to know how labor is currently used and how much it costs.
Consider a specific crop such as peaches. If Founder’s Farm wants to sell peaches at a profit, don’t they first need to know how much it costs to produce a bushel of peaches? They know how much land, plants, chemicals and other inputs that they allocate to peach production cost. Labor, however, appears in the financial records simply as payroll figures that are charged to every crop enterprise that Founder’s Farm operates. How much of that labor is used for peaches?
The only practical solution is to create a system for tracking labor that is allocated to the peach enterprise. Every hour of labor that is dedicated to peach production, packaging, and sales needs to be recorded and totaled at the end of the year. In addition, some record of exactly what labor was used such as spraying, picking, or pruning should be entered into the records because different jobs might have a different value per hour.
The value of this labor record keeping is to give management an opportunity to compare their own performance to other similar operations. If such comparison information is not available then the farm can begin comparing itself against its own performance in other years. Meaningful goals can then be established and weaknesses can be identified and improved.
Finally, we can use this information to answer the big question, “Are we making money in the peach business?” If the answer is yes…that’s great. If the answer is no… what can we change to improve, or should we make better use of our resources in some other enterprise?
Allocating Management Time Effectively
Management in a business is a set of practices, not a position. There are people in management positions who do not manage the business, they spend all of their time providing production labor. Managers in small and family businesses often must constantly shift between management and labor activities.
At Founder’s Farm, the family members traditionally provided a large part of the labor. They liked their work and were good at it. As the business grew, however, the need for additional labor became obvious. Jeff and Mike Gordon added some employees and delegated some production tasks to them while shifing more of their own time into management activities. However, they still kept certain production tasks for themselves.
As the business continued to grow, management and labor demands kept growing too and soon Jeff and Mike found themselves working too many hours and leaving some of their management responsibilities neglected. The answer to this is simple…hire another manager, right?!. But is the answer really that simple? Hiring a manager costs a lot of money. Perhaps it’s better for Jeff and Mike to shift nearly all of their time to management and develop some existing or new labor employees to perform the production tasks that they had kept for themselves.
Management activities focus on organizing production resources so that they deliver results efficiently and profitably. These activities include keeping records and using the information to make decisions, supporting and developing people, and planning ahead to position the business for future challenges.
Busy managers in family businesses must often ask themselves a critical question, “Does it really take a manager to do this task?” Even some of the more complex production jobs can be done by labor employees. Rather than performing a task directly, management’s time might be better used training a talented and ambitious employee to perform it.
It’s easy to neglect management responsibilities. They often are not as urgent as production jobs, so they can be put aside. This is OK in the short run, but in the long run it is a dangerous habit. Managers must learn to delegate.
When a new employee starts work that person is usually given an overview of the business and the people who work there. In many cases, the new employee is given some history of the business, a review of important workplace policies, and provided with basic details
about where the lunchroom is, where to park, and how to punch the time clock. This is all known as employee orientation and it is essential to starting someone off on the right foot.
After orientation is completed, the new employee is asked to focus on performance of the specific tasks they were hired to perform. Even if the person has prior experience, a good supervisor will teach the new hire how to safely and productively follow procedures and use the equipment and resources available to him. This is the initial training program and it is also essential.
Unfortunately, many agricultural businesses stop developing employees after initial training. At a minimum, initial training needs to be followed up within a few weeks to be sure that skills were mastered and performance standards are being met. Ideally, the supervisor will assume a coaching role to continue to reinforce important concepts and increase the employee’s skills. In most cases, the initial training process should continue through one year or at least one whole production cycle.
While training is a relatively short term process, talented, long-term employees need to be developed in order to reach their full potential. Employee development is a process intended to provide ongoing learning opportunities that will prepare valuable employees for future responsibilities. This has the effect not only of preparing employees to meet the businesses future needs, but it also keeps the interest of individuals who might otherwise become bored and move on to other challenges. Thus, top managers build their talent pool and keep their best people by investing in their development.
Planning for the future
For a business to succeed in the long-term, all of the key partners need to move forward in the same direction. For example, if one partner wants to expand into the retail business and another partner wants to maintain the current size and make plans to liquidate assets in five years, then they will be in constant conflict. Family businesses are no exception to this principle.
Unfortunately, family businesses often assume that everyone buys into the same goals, but this may not always be the case. Poor communication among family partners often conceals these goal conflicts. Complex family relationships can also make it very difficult for parents and children or siblings to discuss different points of view. Unlike non-family operations, where business planning and strategy formulation is usually a formal process, family members often simply do not plan together.
Family businesses simply must take time to conduct business planning. This should include a mission and vision statement that brings out the core values that partners share for the business. Specific goals should be discussed and agreed upon. Performance goals for different functions of the business should be developed and systems for measuring performance should be devised. Those partners who manage certain functions of the business should be held accountable for achieving those goals.
How does this relate to human resource management, and to Founder’s Farm in particular? Jeff was considering the option of hiring another manager to help carry the management burden that Jeff and Mike were currently sharing. At the same time, Jeff was concerned that Mike wasn’t being very effective in managing his retail store. It wasn’t clear exactly what the new manager’s responsibilities would be, who he or she would report to, or how this approach would solve the tension currently in the business.
Establishing vision, mission, and goals is a process that forces family business partners to communicate about their plans and concerns. Bringing a new manager into a situation without a shared vision but with a simmering conflict is unfair to the new employee. Conflict is likely to arise because family partners will have differing expectations about the new person’s role. The bottom line is that an organization vision should be in place for the operation to be a good place for non-family employees to work. In addition, a job description and a clear organizational structure with reporting relationships is essential for each employee to be successful.
Founders Farm has a bright future ahead. They are well positioned in their market and they recognize the potential of retail sales. They are creative and willing to take risks and work to see them pay off. Learning to manage people effectively is a significant hurdle that challenges every growing family business. With training, practice, and patience they will master the human resource management skills they need to succeed at the next level.