Elders – now 100% NZ-owned
ELDERS Rural Services NZ is now 100% New Zealand owned and controlled – following its purchase by Ashburton-based agribusiness company the Carr Group.
In a "mum and dad" owned business this is easy to identify. In this situation, what the business is worth is what the owners are worth.
For larger-scale family businesses or companies where the shareholders' equity in the operation significantly exceeds their personal needs, identifying and separating individual wealth from the wider operation can be more complicated.
Why is this so important? I have been involved in a few assignments recently where lack of clarity about this has contributed to over-reaction to negative events in the business. This is especially common where those in their senior years perceive their retirement plan will be jeopardised if the business isn't constantly performing to its potential.
Getting this right is also fundamental to enabling those who established a business to step back with confidence while allowing their fellow shareholders or succeeding family members to commit to new projects which can result in greater risk.
One strategy to manage this is to achieve partial separation of assets so the retiring generation can clearly identify and protect their share of the business – at least at a level sufficient to meet their retirement needs. This could include sole ownership of a portion of the enterprise so they have absolute control over nominated assets.
As a result, the risk to these assets can be minimised or eliminated by excluding them from bank securities, personal guarantees etc.
The overall organisation's resources can then be viewed as comprising two distinctly separate portfolios.
The first is the portion that will be required to generate annual income and ensure access to capital for the personal needs of those nearing the end of their business life. Accurate forecasts of the overall returns from the business will enable precise calculation of how much needs to be separated from the wider operation. The remaining assets can be managed differently from a borrowing and investment point of view. They can be regarded as "venture capital" which could be exposed to higher lending levels or more risk without threatening the fundamental fortunes of senior stakeholders who have less time than younger participants in the business to recover from adverse events.
I have seen this approach used effectively in succession planning to allow more ambitious family members or shareholders to take a more aggressive approach to expansion or innovation. Its real strength is that it offers reassurance for those stakeholders who want to be more conservative without acting as a handbrake of the operation.
If this strategy is combined with clear definition of the values, vision and goals of the business there will be better alignment between timing and selection of business growth opportunities. Most importantly it will mean more rational response to perceptions of personal threat or impact of challenging times on long term prospects for those who prefer to be more cautious.
Getting a sound view on what will be required to maintain lifestyle, health and happiness long-term is fundamental to building a structure that offers this type of sustainability. It takes time and proactive debt management. The big payback is that it avoids crisis reactions to what are in reality minor, manageable events that can otherwise feel as if a lifetime's work is on the line, day in day out.
• Kerry Ryan is a Tauranga based agribusiness consultant available face-to-face or online for advice and ideas. Contact via www.kerryryan.co.nz
