She’ll be right mate!
What would happen if a key person in your farming business was no longer around, or unable to work? Getting your financial house in order helps avoid unnecessary stress at a difficult time. Here’s what you need to know. Words Carissa Fairbrother, Financial Advisor, RIVAL Wealth.
Every season is busy, there is always an eternal to-do list and never an ‘ideal’ time to sustain a debilitating injury or cancer diagnosis. Imagine if the unthinkable happened in the middle of harvest or in the throes of weaning? There also never seems to be an ‘ideal’ time during the year to reflect on, revisit or address your ‘Plan B’. Make sure you’ve crossed the t’s and dotted the i’s before a loved one, an equity partner or a key person in your operation has a health event, or even worse, gets taken out of the equation altogether.
Some folks can self-insure a worst case, but for the majority, the impact can be underestimated and a huge shortfall created. The goal of this article is to get you thinking, to double-check your ducks are in a row so that if the proverbial hits the fan, you have a solid plan in place to keep the wheels turning and the lights on.
What to ask
Are you growing or are you going?
Sounds easy, however, you really need to be honest. Have you had enough and want to exit? Maybe succession is knocking on the door? Are you eyeing up the neighbour’s property as you look to build a generational enterprise? When people reflect on this question, ‘growing’ or ‘going’, one or the other is evident. From here it is easy to identify what funds need to be created by insurance to plug a cashflow gap, bring in labour replacement, fund the next generation on farm, buy out an equity partner or create a small window of time to get ready to go to market in the worst case.
Does your Estate Planning reflect your current wishes?
Almost 50% of adults in New Zealand haven’t organised a will, despite having dependants and assets. This means unnecessary anguish and waiting for loved ones and equity partners. Your final wishes, shareholders agreements and trust documents need to be reviewed and updated regularly to reflect your current situation. Make sure that communication channels are open, involve the next generation if age appropriate. Surprises good and bad can happen at these sad times when the focus should be on celebrating your life and the continuation of business.
If succession needed to happen tomorrow, is the funding in place?
Traditionally we think of succession as the transfer of assets at retirement, however, succession often needs to happen when a key person or equity partner has a debilitating incident or passes away too soon. That is when making sure you have the right insurance in place pays dividends. Make sure you have timely access to private medical care, ongoing income to fund a replacement labour unit, buy out an unproductive equity partner or potentially to pay down debt so a lease payment could sustain the household. Premiums are always a consideration, implementing an excess on your health cover could save 30% of the annual cost for example, opting for ACC CoverPlus Extra, limiting a payment period or a sum insured could save you even more. It is always better to have something rather than nothing in most cases.
Are you servicing debt for 10 years plus?
People often cover 100% of their debt with Life Cover. If you have a large amount of equity in your rural business with a plan to go to market, then having stepped premiums on a portion of that debt, which goes up incrementally each year with age, makes sense. An alternative to annual increases is selecting level premiums, creating certainty for 10 years, through to 65, 70, 80 or even 100. Most shy away from this strategy as it is more expensive for the first couple of years, however, you can save a fortune in the long run.
Is everyone on the same financial page?
If not, you can imagine how the gap widens when a stakeholder is no longer capable or breathing. Sharing, storing information and ongoing constructive communication are the most important elements of every successful financial plan. If someone is not on board or engaging in discussions about the future direction or exit strategy (albeit healthy or unhealthy), nine out of 10 times it is due to lack of understanding. Best not to avoid the chat entirely! First, agree on your terms of engagement, how you will act with respect and transparency and agree to a time frame. Compromise, correct policy ownership and access to information are the fundamentals and articulating a common goal will be your saving grace.
So, if you found yourself raising an eyebrow or potentially having a visceral reaction to one of the questions above, that is okay – time to draw a line in the sand, take note and plan to address it by engaging with an expert and/or reviewing what you currently have in place. Our farming community knows more than most, you cannot control everything, but you can still plan for the worst and hope for the best!
This information is of a general nature and is not intended as personalised financial advice. RIVAL Wealth is a Financial Advice Provider (FAP) licensed by the Financial Markets Authority to provide financial advice. Our disclosure document is located at rivalwealth.co.nz or a written copy is available on request.
