Here, DairyNZ senior developer (people and business) Carolyn Bushell introduces a new process to help farmers establish a strong owner/sharemilker partnership and successful business.
For a sharemilking business to thrive, both sharemilkers and farm owners must do their homework before entering a partnership agreement.
Earlier this year, a DairyNZ-funded study showed many sharemilkers and owners were not preparing well enough before entering a new arrangement.
In response to the study, which included interviewing and surveying a number of sharemilkers and owners, DairyNZ has created a checklist to help farmers follow a thorough process before entering into an agreement.
The Successful sharemilking partnerships: doing your homework checklist is available online at dairynz.co.nz/sharemilking.
How to build a strong partnership
The checklist covers five key areas. These involve getting clarity on both parties’ goals, understanding the business, reading the fine print in agreements and establishing good processes for keeping open lines of communication.
Aimed at farm owners, sharemilkers and contract milkers, a summary of the checklist’s topics is covered in this article.
- What is your current situation?
- Are you able to articulate your goals, values, key philosophies, and focus areas?
- Have you sat down and listed all the non-negotiables you need for the role to work (e.g. location, size of the farm, return on equity)?
- Have you developed a business plan, and can you communicate your key farm management policies (stock, people management)?
- Have you prepared a SWOT (strengths, weakness, opportunities, and threats) analysis for you and your business?
- Understanding different operating structures; knowing the ‘ins and outs’ is important so you can work out how well the business opportunity fits with your needs and wants.
- What are their goals, values, key philosophies, non-negotiables, farm management policies and core business plan components? Do they match with yours?
- Could you work together to achieve a win-win situation?
- To learn more about a potential new business partner, it can be helpful to speak with other people in the area, or with the person’s former sharemilker/farm owners. It’s important to find out how well you could work together.
Gather information to assess the suitability of the job against your needs and philosophies.
Pull together key physical information such as climate data, pasture growth, infrastructure details (including housing), and historical production.
Look at how the farm system and set-up may affect your budget, lifestyle and labour requirements.
Put this together with how well your personal needs/values match the other party’s and consider the components of a joint business plan.
- Develop a budget and do a sensitivity analysis to see how the outcomes might change with fluctuations in milk price, production and farm working expenses.
- Is the contract an up-to-date version?
- This is a legally binding document, so it’s important to read every clause and consider what this means for you, how well it matches your needs and wants and whether it is a profitable decision.
- Assess the rewards and risks associated and get independent advice.
- Discuss the agreement details with the other party. Be open and honest about any concerns or issues you have and look to negotiate, where needed, to achieve the best outcome.
- Seek trusted, experienced third-party advice.
- As businesses become more complex and there is more volatility in milk price, it’s vital to maintain effective and ongoing communication between parties. This spans the development, implementation and monitoring of agreed farm policies and business plans, including sharing key financial information.
- Consider holding regular meetings to satisfy each party’s needs and wants.
This article was originally published in Inside Dairy November 2016