Farmers who want to be the CEOs of their own agricultural endeavors are getting expert advice from Danny Klinefelter, a management and finance guru affiliated with Texas A&M University.
Here are his three best tips for buying agricultural equipment:
1. Group buying
Group buying – also known as alliances or joint ventures – is a concept in business that is continuing to gain credibility in farming, according to Klinefelter: “It’s where several farmers in same area have gone together to purchase a bigger piece of equipment, more land or new technologies.” This collaboration can also help farmers access intangible items, like specialized management skills. Klinefelter continues, “Together we can afford to hire a higher skill set than what we could hire individually, and by buying or selling things together we can gain economies of scale.”
Farmers can make purchases within the same business but under distinct operating LLCs, allowing them to maximize their tax savings, access to capital, and liability protection. Managerial accounting is also simplified through the formation of an operating LLC, as separating liabilities from assets allows for better determination of which agricultural activities are returning a profit. As Klinefelter explains, “If I own land, I want to show a land cost that is equal to, not under, its rental value. The same is true for equipment. If I own equipment, I want to see a cost that is less than what I would pay to rent it. The numbers will tell you whether you are spending too much on certain inputs.”
2. Peer advisory groups
Peer advisory groups can also help farmers to make wise purchasing decisions. These groups typically consist of 8-12 farmers who are experts at what they do, and who are not in competition with one another, for the purpose of sharing their knowledge with one another.
“It’s like creating your own board,” describes Klinefelter. “But it isn’t as formal. There is no fiduciary liability. And instead of having a governing authority, you appoint a facilitator to direct the discussion.”
At the moment, advisory groups with respect to technology are gaining in popularity. Farmers are able to learn about new technology products available on the market as members gather to discuss software they’ve purchased or products they are considering. “As farms get bigger and more sophisticated, no one is an expert on everything,” he explains. “If one person learns about a technology and then passes on that knowledge to the group, you accelerate the learning curve.”
Members of such peer advisory groups are carefully chosen based on their interests, abilities, and trustworthiness. The real value of these groups is to get a wide variety of viewpoints. “Am I the only one having this problem? Or is there a different way I could approach it?”
3. Process management.
The third tip for improving farming is the use of process management. Every process or product is evaluated with respect to its ability to increase production, improve quality, streamline operations, or save time. This concept is also used in industrial engineering, though it is typically known by other names such as Total Quality Management, Lean Manufacturing, Six Sigma, or Balanced Score-Carding.
Defining what the farming operation does and which responsibilities are assigned to each person is the first step in process management and is known as “process mapping.” Once a process is defined, users can figure out how it can be done more efficiently. This can also be utilized to ascertain when a new technology or product would be a good investment.
Klinefelter explains that process management is not a one-time activity. As circumstances change and new products become available, procedures must be updated regularly to determine if those technologies could improve quality, eliminate steps, or reduce time. “Otherwise, the system can become like a labor union or government bureaucracy, where you become bound by your standard operating procedures.”