Geoff McIntyre
Spring in the Okanagan Valley is a special time. The grey valley cloud gradually gives way to the spectacular blue skies that characterize our unbeatable summers. The days become longer and a renewed energy seems to take hold everywhere. Nowhere is this more apparent than in the orchards and vineyards that surround us. Buds are bursting and fruit trees are in full bloom.
As spring turns to summer and the tourists arrive, we may complain about the traffic and steady stream of houseguests, but we are secretly proud to show off our gem to visitors from across Canada and around the world. It’s these visitors that drive our economic engine and make it possible to earn a living in such a wonderful place.
The relationship residents have with their surroundings can be a bit like the relationship farmers have with their business – an economic drive mixed with emotional connection.
As a Chartered Accountant, I was trained to focus on numbers, where decision making is boiled down to a number-crunching exercise, and the goals are straightforward: maximize profit and cash flow and minimize tax. These are the technical skills that underpin my profession. Take the emotion out of the equation and focus on what the numbers are telling you.
Early on in my career, I started working with farm families. These were mostly grain farmers, with land bases that would easily swallow up 20 or more good-sized Okanagan orchards or vineyards. I learned an important truth about those who choose to earn a living from the land. At the risk of stating the obvious, farmers don’t farm to get rich. I’ll pause and let that sink in.
There is no other industry I can think of where success or failure is so much beyond the control of the business owner. A good farmer will do everything he or she can to mitigate risk, but at the end of the day, weather has the potential to wipe out a promising year in an instant. It could be a late spring freeze that stuns young grapevines or a mid-summer downpour that splits an orchard of perfect cherries. Farmers have learned to take what the land gives them and accept what weather, pests, disease, rising input costs or slumping commodity prices take away. Farmers understand that if the goal is to get rich, they are probably in the wrong business. So why do they do it?
It’s at the root of who they are. Rural life somehow seems simpler. It’s a welcome respite from our modern world full of noise and stress, where the pace of life often seems overwhelming. In the Okanagan, we are seeing more and more baby boomers who have had enough of the rat race and are buying orchards, vineyards and wineries in search of a more relaxing rural (but not too rural) lifestyle. For these folks, wealth and lifestyle preservation is the main focus.
Other people continue to farm because they feel a deep connection to the land that may have been in their family for several generations. They feel an obligation to carry on the family farm business and the values it represents. Their wealth comes from the satisfaction of continuing something that their parents started, often with the hope that their children will carry on the tradition. The goal for these farmers is to manage their farm business in a way that is financially sustainable, even if it’s not highly profitable.
As the level of risk increases, investors in any business will demand a higher rate of return on their investment. Investing your money in a small private business is risky business and that risk level increases considerably when the business is farming. Why then, would anyone want to invest a large amount of money in, say, an estate winery, where returns are traditionally low compared to the large amount of capital required to start up such an operation?
When you get beyond the hard numbers, the reasons are quite often emotionally based – a desire to create something special, a passion for wine, a love of the land, the continuation of a tradition, the realization of a lifelong dream. With these broader values in mind, planning options might be acceptable as long as the outcome is a business that is sustainable, if not extremely profitable.
What I want to stress is that the traditional goals of business planning (profitability, return on investment) and tax planning (tax minimization) are not necessarily the end goals themselves. We need to keep in the mind the higher level goals and objectives of operating a business, that are often less rational and more emotionally based. This is particularly true in farming.
Good advisors will ask the right questions to make sure they truly understand the core values and motivations of their farm clients. Make sure your advisor understands that what drives you to grow fruit or make wine extends far beyond the bottom line.