TOOO HARD Proagtive Blog Series #9 RISK

Katrina Garrett - Wednesday, June 03, 2015

Risk is all around us in the world and none more so than in agriculture. We have all the risks of running a business, OH & S, Financial, cash flow etc and on top of that we have markets where we are largely price takers, weather we cannot control, interest rates, AUD and so on.
It is interesting to note however that among all the risks above, many of which we have no control over, we tend to focus allot of our attention on those none controllable ones and often use these as a basis to justify why we have not achieved the outcomes expected. The other area of risk we do see all the time and is controllable, and in our view impacts more than any of the external risks is the family relationships and the communication that underpins these relationships. Often we will talk about the potential uplift in agriculture and much of this comes from getting aligned to the outcomes but this takes us to sit down and talk about what is needs to be and why. 

So what happens in reality? In the majority of cases, we talk about simple operational things and call this communication, we assume everyone has the same thoughts desires, goals and objectives we do, we sometimes assume the worst in people and see new family members as potential threats and act accordingly. The ultimate outcomes we then see are disengagement, family disputes, people leaving the sector etc etc, the old war stories. We blame the fact it did not rain, the banks, the dollar, global interest rates and all the things we actually have no influence over, yet ignore simply how we could have managed some of the impacts of these things better.

One thing I have learnt over 24 years in finance and now dealing with family farms is risk part of every business and decision we make. Risk does not often just go away, it actually needs to be dealt with. First however is to understand what the risk is, determine how to mitigate it and then assess the cost and benefit of this decision. Some risks are regulatory and therefore have a cost where we may not see benefit, eg. health and safety protocols for operation of machinery etc. We need to manage these, put policies in place so that we reduce incidences and therefore protect our business and assets. 

So when we consider the “other risk” sitting within the family business what are some of these:
- Lack of alignment of the strategy.
- The impact of an unexpected accident or worse.
- The consequences of an estate plan that does not match the business plan.
- The consideration about how assets will be owned and transferred.
- The addition of new members to the family, they come from a different family with different ideas to our own.

The thing about these risks is that they require thinking and communication to address and for a family initially this does not cost anything but some time if addressed in-house. However given the potential emotion that we assign to these issues they become too hard to address, are left to another day and eventually show their head as a conflict now entrenched in other emotion. These same risks are one of the controllable risk areas that can actually be dealt with upfront and early but we tend to not take the time or make an effort to identify and address in an appropriate manner.

Businesses that create a platform for communication are prepared to ask the hard questions (in the right manner), have some structure about the process and value the contributions of all parties invariably success and prosper. We cannot lose sight of the fact that the opposite of risk is reward and opportunity and this is what is created when we focus on our controllable risks (including operational inputs etc, crop rotations, timing of activities). If you are clear on the plan, have a strategy for managing your risks it is amazing to see how a business can create opportunity, growth and in effect de risk the business and family. Now that is something worth investing some time into in my books.

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