Assignment Task: Read the "Case Study: Wedding Scenario" document as well as the "Case Study: Thunder Farm and Brewery" document to answer the following questions:
1. Explain the most urgent business and personal risks of Thunder Farm and Brewery (TF&B) that you discovered.
2. Determine other elements of property and liability risk you found in your analysis of TF&B.
3. Describe how the owners are currently mitigating risk.
4. Based on your initial assessment, explain why, or why not, these components are sufficient to mitigate risk inherent to the business.
5. Based on your initial assessment, discuss what risk mitigation strategies could be improved.
Case Study: Wedding Scenario
On a Sunday afternoon on Thunder Farm and Brewery (TF&B), a wedding party was preparing for the ceremony in the farm house on the property.An elderly woman (84 years old), the bride's grandmother, tripped and fell inside the house. As a result of the fall, she broke her hip and elbow, and experienced mild concussion symptoms. An ambulance was called and the woman was transported to the emergency room and, later, admitted into the hospital.She remained in the critical care unit for six weeks. When she was released, the owners of TF&B were presented with a letter from the woman's attorney stating they were expecting Thunder Farm & Brewery to pay for the hospital stay, medications needed, physical therapy afterwards (four months duration) for a total of $290,000. In addition, the woman has filed a civil lawsuit against TF&B seeking $1,000,000 in damages for pain and suffering.
Case Study: Thunder Farm and Brewery
In 2016, businessman Rich Jones (now age 60) purchased a farm outside of Harrisburg, PA where he decided to plant hops. In 2017, his brother Tom (now age 56) became a partner and the two opened a restaurant and a brewery out of a barn (built in 1886) on the property.
Thunder Farm & Brewery, Inc.
Thunder Farm & Brewery, Inc. (TF&B) is structured as an S-Corp owned by Rich (60%) and Tom (40%). Rich is the majority owner to maintain his voting and management decision-making authority. TF&B operates the restaurant, brewery, petting zoo, and hops farm.
Restaurant: 7,000 ft2 two-story restored barn. 75 seats upstairs, 115 seats downstairs. The kitchen makes up 1/3 of the space. The 1,200 ft2 brewery connects to the restaurant. Customers have access to the brewery through the restaurant. There are 31 employees (25 part-time and 6 full-time). TF&B does not currently offer full-time employees any employer-sponsored health insurance or retirement savings options.
The restaurant is both indoor and outdoor. The concrete patio slab seats 45 diners and has a space for a local band. The asphalt parking lot is in front of the restaurant. Across the asphalt street leading in from the main highway is the hops farm.
TF&B's primary source of business is hosting weddings and corporate events, and while it is open year-round, it operates on a reduced schedule January - March.
Annual revenues are trending positive and were $1,849,460 in the last fiscal year.Book value of TF&B's restaurant and brewery assets is $201,240 as of the last fiscal year.
Currently, TF&B carries a Commercial Package Policy with $250,000 of liability coverage and $250,000 of property coverage. In addition, both Rich and Tom have key-man term life insurance, with a face-value of $100,000 and each other as beneficiaries.
The property that the restaurant and brewery occupy is owned by JJ Real Estate, LLC, (JJRE) where Rich and Tom each own 50%. JJRE has a 5-year, renewable lease with Thunder Farm & Brewery, Inc, at an annual rate of $12/square foot ($84,000) or $7,000 monthly. TF&B pays for all utilities, while TF&B pays real estate taxes and insurance. The building and land were recently appraised at $390,000. JJRE has the property insured for $400,000.
Organic Garden: The restaurant staff manages the outside organic garden that consists of lettuce, zucchini, radishes, carrots, tomatoes, cabbage, eggplant, asparagus, cauliflower, broccoli, and cucumbers that they use for the restaurant.
Petting Zoo: The farm has a fenced-in petting zoo open all year all week. Animals at the petting zoo include: 16 chickens, 6 baby goats, 2 adult goats, 2 pot belly pigs, 2 alpacas, 2 llamas, one pony, and 4 sheep. The eggs from the chickens and milk from the goats is used in the restaurant.
Hops Farm: 22 acres. Consists of 105 wooden poles that are each 22 feet tall. On site is a 1,000 ft2 workshop/garage the owners use for storage and construction projects. Adjacent to this garage is a structure that covers the farm equipment Book value of TF&B's hops farm assets are:
- (1) John Deere Tractor with loading bucket and forks to upload trucks: $124,960
- (2) Plow: $115,100
- (3) Six-foot Bush Hogs: $50,040 each
- (4) Corn planter (with 24 rows): $65,640
- (5) Hop Harvester: $50,000(1) 6 ft tractor operated roto tiller: $2,600
- (6) Tractor drawn sprayer: $3,550
The hops farm is owned by JJRE and leased back to TF&B at an annual rate of $150/acre of land plus $6/ft2 ($6,000) or $500 monthly for the workshop and garage. The buildings and land were recently appraised at $160,000. JJRE has the property insured for $200,000.
Farmhouse: 250 yards from the restaurant is a house that is occasionally used for wedding parties and overnight guests of the owners. This 1,500 ft2, 3 bedroom and 2-bathroom house, is owned by Rich and was originally built in 1962 but was fully remodeled in 2017 (new roof, insulation, electrical, plumbing, flooring, kitchen appliances, and air conditioning unit were included in the remodel). The current value of the home is $250,000. Rich has a $250,000 homeowners insurance policy to cover property damage and any potential injuries or accidents by wedding party members or overnight guests.