As we talk about legacy plans to transition your farm business to the next generation, let's not forget we need to manage risk to make sure there will be a business for the next generation.
That reminder hits close to home for those of us in Minnesota, where an outbreak of avian flu has hit 82 farms and more than 5.5 million birds, according to the Minneapolis Star Tribune.
Many operators are reporting dramatic financial consequences as they lose every bird on the place, and their facilities are shut down for months to remove the infection. Of course, you want to have appropriate insurance to cover your investment, but even the best insurance can't really address a setback like a total crop loss or entire herd or flock depopulation.
Catastrophic losses like this point out a common risk for any agricultural producer -- and most other small business owners – not enough different revenue sources.
Many times successful business owners talk about investing their profits from a good year "back into the business." The risk here is that all the owner's equity is in a single enterprise with one source of income. The opportunity for the careful owner is to use profits from good years to create complimentary income streams.
Multiple complimentary income streams are a great asset to any operation. As we think about creating a legacy for the next generation, we need to build a healthy, productive and resilient business in the present. It gives us more flexibility as we exit, and creates more options for the next generation as they move forward.
It could be a complimentary business, alternative crops or maybe its investments in income-producing assets based outside your industry. The advantage of an income investment is that it doesn't require you to manage an additional business enterprise. When done right, you can get supplemental income while being a passive owner.
If this blog has got you thinking about your own situation, get in touch with my office ([email protected]).
The opinions of Rich Dunn are not necessarily those of Farm Futures or the Penton Farm Progress Group.