6 Legal Tips For Starting Your Farm Business

While you may be passionate for raising food and caring for the land, a savvy farm-business owner needs to keep legal obligations in check.

by Anthony Rago
PHOTO: Fuse/Thinkstock

America is a land of dreams. The national story is that—to use an aquaculture metaphor—the world is your oyster: If an American has a good idea and the determination to overcome obstacles, he or she can carve out a little economic kingdom and live happily ever after. Wed this American dream with an equally deep American love of land, rivers and the seashore, and a farm business is born.

The terms “agribusiness” and “agritourism” have entered the American vocabulary rather recently to describe new ways of branding this version of the American dream to a new generation of consumers who value “buying local,” organic foods, fresh air and small businesses that are tied to the families that run them.

Many farm entrepreneurs—perhaps even you—have eschewed the busy lifestyle of the city live closer to nature while earning a living. Other farmers have been in business a long time, but want to make improvements to an existing venture. Each type of farmer needs a steady grasp of business planning to succeed. The advice you’ll find below isn’t targeted toward a specific type of operation. You’ll need to take responsibility for you own operation and work within your state’s legal framework. Consult lawyers, accountants and other professionals as necessary, and consider taking business management and law courses that come available.

1. Verbalize Your Dream

Start by writing out a business plan, even if your business is already in operation. Then, take time to look with an unbiased eye at proposed or current operations. Alone or with trusted friends and professionals, consider first what could possibly go wrong, and second, how to set up shields to lawsuits. These protections, as well as compliance with law and regulation, are all costs of doing business.

2. Get Liability Protection

Several methods are available to shield an entrepreneur’s personal fortune from real and imagined threat of liability for personal injury. These threats are as varied as the imagination. They can range from a trip and fall with minor injury to harm caused by animals or by a car accident during the course of business operations. Some states have enacted laws to protect agribusinesses from liability. The Code of Virginia, for example, provides specific protections to entities engaged in equine, bovine and agritourism activities, provided the businesses are themselves abiding by the terms of the statutes meant to protect them.

Consider establishing the business as a separate entity, distinct from the owner. Without establishing the business as its own entity, the owners are considered sole proprietors or general partners and can be liable personally for acts of the business. There are several ways you can establish a business: as limited partnershipscorporations or limited liability companies. Further information particular to each state about the protections and responsibilities of each form of business and about the steps to set up the entity should be available from the corporation commission, the state code and attorneys.

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Insurance coverage is a private contract between a purchaser and an insurance company that helps guard against liabilities. When insured, you pay the premiums and receive protection, pursuant to the contract. Homeowner’s insurance and auto insurance are commonly known types of insurance, but with the rise of agribusinesses, some companies offer special insurance, such as equine insurance, for particular activities or for the business as a whole. Internet searches, your local cooperative extension agent, and professional associations can help you discover the best insurance available for your business’ reasonable risks.

3. Use Business Management Best Practices

In today’s litigious and policy-driven society, you business should have hand-written procedures for common activities. These should be composed with safety in mind and can be linked to agricultural best practices and applicable regulations, such as those from the health department. They should also include disciplinary policies for employees if you have them. These procedures, when enforced and recorded, have the benefits of developing good work habits, setting standards of accountability, and providing protection against lawsuits and unemployment claims by showing that the business followed commonly accepted best practices.

4. Set Up Contracts

A contract is a private obligation between two or more business parties. Agricultural contracts might obligate the farmer to provide goods that are in merchantable condition for their customers. The buyer may be obligated to purchase a set amount of goods—or even all the goods—that are produced. When setting up such contracts, it’s wise to have an attorney draft or review it. A good attorney will, through conversation, get a sense of your business and provide a tailor-made document.

Attorneys have the training to imagine many of the things that can go wrong with your farm business—adverse weather, breach of contract, et cetera—and they’re hired to act in your best interest. Some items to consider in drafting are:

  • the point at which contracted goods are the responsibility of your customer and not you, the farmer
  • the resolution of disputes by mediation prior to lawsuits
  • the choice of state law governing the contract if the transaction is in interstate commerce

Consider finding an attorney you can develop a long-term relationship with. An attorney who understands your and your business needs can be an important assistant in negotiating contracts, representing the your farm business before zoning commissions and regulatory agencies, re-inventing your business, or in ending it or transmitting it to a new owner. With recent court rulings that impact the way businesses conduct themselves, an attorney can be particularly helpful in negotiating the changing legal framework of American society.

5. Consult Regulatory Agencies

State regulators in the health, agriculture, marine resources, tax, unemployment commission and worker compensation departments are a wealth of information. They’re experts in their fields and part of their job is educating you. Even if they’re already busy, getting business operations set up on the right foot means less work for them in the long run. The time put into properly setting up your farm business means less time correcting any mistakes. Also, don’t forget to seek help from professional associations, federal regulators and your county cooperative extension.

6. Save Business Documents

Farm entrepreneurs should keep business documents organized and handy. Audits are a part of business life, whether you’re checking the facts of operations against intended goals or an outside agency is required to review your business. Business documents do not need to be complicated. Here are some basic documents and tips:

  1. Create A General Ledger:
    This is a master list of categories and subcategories pertaining to income sources, assets, liabilities and expenses. Within the categories, list each item, recording the date, the check or bill number, the amount, to whom it was received or paid, and a brief explanation. For example, under the “Income” section, Mr. Lambert Shepherd, who raises and sells various livestock, would separate his revenue by type of animal he sells.One entry might read: “6/4/15, Cash, $100.00, 2 lambs, St. Demetrios Church Greek Festival.”For expenses, he might record “3/5/2015, Ck # 1234, $50.00, Veterinary Supplies, McCallum Veterinary Co.”

    If he accurately keeps his records, at the end of the year he will be able to review a complete list of buyers and suppliers, the popularity of the animals he offers for sale, and a running tally of his income in relation to his expenses. He can use these tools to determine whether he needs to alter his operations in the future.

  2. Keep An Organized Checkbook And/Or Keep Check Stubs:
    Correlate expenses with an organized list of invoices, and keep bank statements in one place. If petty cash is on hand, keep a ledger of each time petty cash is used and replenished.
  3. Keep Personal Expenses Separate:
    It is very important to separate your farm expenses from your personal one. Do not co-mingle business and home finances, even if the operation is a sole proprietorship or general partnership.
  4. Keep Business Documents Neatly Together:
    This includes business licenses, special permits, titles to vehicles used in the course of business, taxes, insurance documents and records of payment. Keep the past several years easily accessible. You never know what year could be chosen for an audit, and it is wise to respect the auditor and the value of the business by being prepared and organized.

The above considerations are not exhaustive of all the considerations you should consider as an entrepreneur. They’re not specific to a state or industry, and they aren’t meant to scare you. Use them to help in methodically planning your new farm-business-to-be, so you can fulfill a dream, create a solid legacy and avoid a nightmare. I personally wish you success and happiness.

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