CEG Ltd director Tony Marshall, of Dunedin, has more than 25 years’ experience helping farmers achieve goals, including succession and building equity.
"At the beginning, everything is going really well and no-one is thinking too much about what the long-term situation is going to look like, but the real litmus test is when things are not going well — that is when I have seen equity partnerships succeed and fail badly, so getting things set up at the front end is essential."
He recommends getting the right advisers on the board at the beginning.
Independent advisers were useful and made it easier for all parties.
Advisers needed to get on.
"You need to have your accountant, lawyer, farm adviser and whoever else is involved in the process to all be on the same page and be speaking the same language."
Advisers could be interviewed by investors to determine if they were right fit.
"It is essential you have that tight relationship."
An independent chairman could be considered to help make decisions, especially when two parties were involved in a partnership.
The independent chairman should be appointed early.
"It is very hard to get an independent chair in at a later date to try and fix a mess where the equity partners are not talking to each other."
Communication and trust were an essential part of any successful equity partnership.
"Once the trust is gone, it is very hard to bring it back."
A "key thing to get right at the front end" of a deal was a business structure, he said.
"You don’t want to be changing part way through."
Also "rules of engagement" should be set out at the start of a business relationship.
"You want to plan for what happens if things go wrong, and where I’ve seen equity partnerships really struggle is where the rules of engagement haven’t been well set out at the front end."
A new farm business could be missing important policy documents, such as how to determine salaries and key performance indicators for farm operators.
"One equity partnership I was involved with was trying to deal with key performance indicators, four years down the track. It is near impossible to get agreement between the parties once we are down the track."
Discussions at the start made it clear on the goals of the business and set targets.
At the start, all stakeholders should make it clear how they wanted to operate, how long they wanted to be involved and how the decision-making process would work, he said.
"Are you a silent investor or do you want to dabble with what is happening on-farm?"
Dividend policies were needed to make it clear if profit would be paid out, used for debt reduction or capital development on the farm.
"It is a lot to think about at the front end. There is a lot of excitement at the start and a lot of people have their blinkers on at what could go wrong."
