The Farm CPA
Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.
Day Two of FFSC (Session Two)
Aug 03, 2011
Danny Klinefelter from Texas A & M was the second speaker of the day and his discussion on Peer Advisory Groups and Continuous Management Improvements. The studies from about 1,100 top producers around the US over the last several years attending the TEPAP conference show that only about 50% were using cash flow budgets and tracking profit and cost center. Only about 25% were tracking key ratios and using a policy for dividing earnings and withdrawing capital. After getting exposure to the use of these tools, after five years the percentage using these tools had increased substantially.
Douglas Adams, the author of The Breakthrough Company stated "Human beings, who are almost unique in the ability to learn from the experiences of other, but are also unique in their disinclination to do so". The use of a Peer Group is designed to spark this ability to learn from others in your industry.
The Rule of 72 no longer just applies to compounding of interest, but the compounding of knowledge. Therefore, if you increase your knowledge at 6% per year, your total knowledge will double in 12 years. If you can increase it at 24%, you can double in 3 years. The use of a Peer Group can increase this compounding dramatically.
Peer Groups are in the range of 5-12 producers, but the optimum range is probably 8-10. Make sure the group is full of "Eagles", not "Turkeys". Try to not to have groupthink. You want many differences of opinion in the Peer Group. Many have monthly, quarterly or annual meetings. You may want to be a member of two Peer Groups. One based on operations and may involve competitors in your area and the other would be on the more sensitive areas of finance and succession planning, etc. that would be comprised of producers outside of your immediate area.
Danny's goal is for 500 or more Farm Peer Groups to be in existance within the next five years. Remember, nobody is smarter than everybody.
Some of the advantages of a Peer Group are:
- Multiple vantage points and different perspectives
- Sounding board for plans and ideas
- Identifying alternatives and exploring what if scenarios
- Increased insight and objectivity
- Benchmarking (production, financial, compensation, etc.)
- Identifying opportunities to capture economies of scale, reduce costs, improve asset utilization, gaining market access through collaborative efforts.
- Overcoming isolation
Even if you are top producer, you will find areas that others are Top Top producers and you can learn how to improve your operation to become the Top Top producer.