06-Beginning Business Arrangements.woSWOT.2006.03.14

06-Beginning Business Arrangements.woSWOT.2006.03.14 -...

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Business Arrangements Page 1 Beginning Farm Business Arrangements Introduction The typical farm operator and his or her business pass through two or more stages during the operator’s farming career. The entry (or testing) stage is discussed in this chapter. The alternatives for the longer-run business arrangement are discussed in the following chapter. Merging the life cycle of a beginning operator (related or unrelated) with the typical life cycle of the established operator must be approached with caution and candor and explored carefully. Each situation is different for at least three reasons: 1) Level of achievement and objectives of the established operator 2) Beginning operator’s ability and timing of his or her entrance into the business relative to the established operator’s cycle. 3) Treatment and/or expectations of the beginning operator by the established operator. Each individual farm operation is different and the transfer process needs to account for the unique circumstances on each farm. The beginning and established operators should first analyze the current situations and then outline the objectives of each. They should then make a preliminary appraisal of the possibilities of working together in a variety of joint business arrangements. If a joint operation is decided upon, then the two (or more) operators should enter a testing stage. The purpose of this testing stage is two-fold; to help the beginning operator decide whether he or she really wants to farm, and to help the parties decide if they can make a joint business arrangement work from both the personal and the business points of view. Business arrangements adapted to the testing stage normally are in one of two broad categories. The first category includes various types of employer-employee arrangements in which the beginning operator contributes primarily labor and possibly some management. The second category includes various joint operating agreements that may at times evolve into a more permanent arrangement such as an LLC, a partnership or a corporation. With these latter arrangements, the beginning operator will be supplying some of the personal property as well as labor and management. Employer-Employee Agreement An employer-employee agreement is particularly well suited as a beginning agreement when the beginning operator is still deciding whether to continue in farming, or is not yet willing to commit financial resources until it is clear the beginning and established operator can work together. There are a variety of types of compensation provided in farm employee contracts. They include cash, wage and income share, incentives, bonus payments, fringe benefits, and commodities received for the labor provided. An employment contract may involve more than one of these types of compensation. As with any type of working relationship, the employer/employee agreement should be in writing whether the parties are related or not. Cash
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This note was uploaded on 08/08/2008 for the course AAE 320 taught by Professor Mitchell during the Spring '08 term at University of Wisconsin.

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06-Beginning Business Arrangements.woSWOT.2006.03.14 -...

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