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Often times, when discussing diversification with farmers and rural business owners, we find the default is for them to consider the management and full investment obligation to fall on their already busy shoulders. Whilst remaining heavily involved in core business activity, adding further workload and resource requirement is understandably difficult to digest! This often results in stagnation of projects and a barrier to diversification.
However, a potential opportunity to fulfil these requirements could be through joint ventures. Many farms are familiar with this term and business structure, due to the increase in agricultural joint venture partnerships and contract farming agreements in recent years, in an attempt to reduce overheads, spread risk and improve efficiencies.
We have seen and successfully delivered various forms of joint ventures and collaborations on behalf of our clients. They allow investment, resource, and management to be shared. In many cases, we’ve seen this enabling what could be considered to be a very management-intensive enterprise (such as glamping) for the landowner, to become almost entirely passive.
Contact us today and we’ll gladly help guide you through the options available with regards to business structures.
What is a Joint Venture?
The term “joint venture” relates to a business strategy whereby two or more parties come together to achieve a common goal. In the context of farm diversification it involves collaborating with other farmers, businesses, or individuals, perhaps even outside of rural business. By doing so, their skillsets and resources can be leveraged, risks and cost of new ventures shared, and access to new markets can be attained allowing landowners to maximise the opportunities available.
Joint ventures come in various forms, from legal partnership structures, to rent, lease or licence type agreements. Typically, one of these will be most appropriate depending on your appetite for managerial involvement, income and risk.
A great and recent example of joint venturing, with an “added value” theme can be seen in the launch and success of the now very popular Hawkstone, as seen in Season 2 of Clarkson’s Farm. To facilitate this range of product, a collaboration between Diddly Squat Farm and the Cotswold Brewing Co. was required. The Hawkstone brand and business demonstrates how powerful collaboration can be, highlighting joint ventures as a tangible solution to management, labour and skillset concerns surrounding diversification on farm.
See our recent blog on Clarkson’s Farm 2 here.
Visit the Hawkstone website to read more about the collaboration.
We have active relationships with suppliers and operators in many rural businesses, actively looking for landowners to partner with to expand. This has, on numerous occasions allowed previously discounted enterprises to be delivered for our clients, allowing them the benefits of each diversified enterprise on a more passive basis. As per our “Business Structures & Independent Suppliers” page, examples include glamping, rural offices, retail and more.
Legal Partnership Structures
Should you wish to create a formal partnership, firstly, it is important to decide on whether the joint venture will operate as a business partnership, or limited liability partnership. A standard business partnership is where an arrangement between two or more people collaborate to run a business, sharing profits and liabilities between themselves personally. By way of a partnership agreement, how the business is run is up to the stakeholders. Each partners profit share is taxed as personal income as per a self assessment. It’s important to note that each partner has unlimited liability for business debts.
A limited liability partnership (LLP) ensures the partnership is a separate legal entity entirely, therefore, partners are not liable for its debts and liabilities, unless specified within the agreement. Similarly, partners within an LLP are taxed on their share of the profits. The LLP is not taxed separately.
What are the Pros of a Joint Venture Partnership?
- Scope and opportunity for an increase in capital investment
- Additional skillsets, resources, contacts and labour
- Shared investment in terms of costs and management responsibility
- A second opinion, greater idea generation and in some cases, increased satisfaction
What are the Cons of a Joint Venture Partnership?
- Potential for disagreements and conflicts
- Sharing of profits
- Potential loss of total control over business or enterprise
- Potential loss of total control over your land or built assets
What to Consider Regarding Joint Ventures or Collaboration?
Prior to collaborating with others or the formation of a joint venture partnership, we think it is important to answer the following questions:
- Have you found a reliable, likeminded and effective business partner, operator or business?
- What do you need from other parties? Capital, labour, management etc? Do they satisfy this requirement?
- Do you mind sharing profits, responsibility, management control and your landwith other parties? To what extent?
- How will you exit the joint venture or terminate the agreement if you needed to?
- Who will be responsible for mediation of formal agreements?
Conclusion
Through considering collaboration with 3rd party suppliers, or joint venturing with others, farm diversification can often be delivered and run without requiring undesirably high additional time and management input from a landowner. This allows them to direct there focus towards core business activities or other priorities. Next time you find yourself thinking about your next diversification project, don’t fall foul of thinking the only way to deliver it is on your own!
At Dudley Peverill, we work hard to deliver farm diversification on behalf of our clients, often encountering matters arising from the above. Contact us today to discuss diversifying your farm or rural business, or how to utilise collaboration and joint ventures on your farm or estate today.
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