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Beginning Farm Business Arrangements

Starting a farming business requires understanding various agreements, including employer-employee arrangements and operating agreements. These frameworks define compensation structures, asset contributions, income distribution, and job responsibilities, ensuring clarity between parties. Joint operating agreements facilitate shared resources and income based on contributions, while enterprise agreements streamline operations for beginning operators. Additionally, exploring leasing considerations for land, machinery, and livestock can optimize capital usage. Each agreement is vital for smooth conflict resolution and business success.

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Beginning Farm Business Arrangements

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  1. Beginning Farm Business Arrangements

  2. Testing Stage p. 1 • Employer-employee arrangements • Operating agreements

  3. Employer-Employee Agreement p. 1 • Compensation: • Cash • Wage and income share • Incentives • Bonus payments • Fringe benefits • Commodities

  4. Operating Agreements p. 3 • Beginning operator • May furnish some personal property such as livestock or machinery • May provide some management as well as labor

  5. Operating Agreements p. 3 • Agreements should cover topics such as: • Job responsibilities • Contributions of assets • Distributions of income • Method of settling disputes • Dissolution of the agreement

  6. Joint Operating Agreement p. 3 • Operators are sole proprietors • Each contributes assets, management and labor • Income is shared based on inputs • Each pays expenses of their assets • Operating expenses are split

  7. Joint Operating Agreement p. 3 • Complete inventory should be taken at the beginning • Sale triggers recognition of gain • Could be transferred by gift • Could allocate income to pay for inventory • Could repay at end of agreement

  8. Enterprise Agreements p. 5 • Beginning operator’s income is all from one enterprise • Labor for other enterprises may be a source of conflict

  9. Total Farm Operating Agreements p. 6 • All income and operating expenses are split • Beginning operator acquires more assets over time

  10. Leasing Considerations p. 6 • Allows effective use of limited capital • Short or long term • Land, buildings, machinery or livestock

  11. Real estate leases p. 6 • Leases for more than a year must be in writing • 90 days notice is required to terminate a year-to-year agricultural lease

  12. Real estate leases p. 7 • Cash leases • Crop share leases • Livestock share leases

  13. Farm building leases p. 8 • Leasing from builder or bank • An alternative to financing • Leasing from a neighbor • Be careful about cost of repairs

  14. Livestock leases p. 8 • From leasing company • From retiring farmer • Advantages for retiring farmer • Advantages for beginning farmer

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