Danny Klinefelter, former professor and extension specialist at Texas A&M University’s department of agricultural economics, notes that four states of knowledge exist:
- What you know.
- What you know you don’t know.
- What you don’t know you don’t know.
- What you think you know that isn’t so.
What does all that mean? Well, it can be a long time from the completion of high school or some form of post-secondary education until retirement. So there is a lot to “know.”
A tremendous amount of change occurs in agriculture over that time frame. How does a farmer or farm business stay ahead of the game in such a fast-paced and ever-changing environment?
Jack Welch, former chair and chief executive officer of General Electric, famously stated that “an organization’s ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage.”
Simply stated, farmers need to give themselves their best shot at “knowing.”
There are some important questions. Do you believe that you or your farm should invest in professional development? If so, you should develop and write down a plan. Where does your business need to strategically invest in professional development? How much are you willing to invest in an annual learning plan?
“Invest” is a key concept here. When an investment is being made, there should be the expectation of a return on that investment. The return will be difficult to quantify and will often be longer term, like a slow-release fertilizer. However, there will be a return.
How much to invest
There are several different ways of determining how much. It makes sense to me that a professional development budget somehow be correlated to the revenue stream. I think of it as being a percentage of gross revenue.
A percentage of company value (equity or retained earnings) could also be used. I checked and small- to medium-sized companies will typically spend up to or exceed one percent of gross revenue on professional development.
That might be ambitious for a farm and if so, then use a lower percentage as a guideline; say 0.5 percent. That equates to $5,000 on gross revenue of $1 million. If the farm had equity of $2.5 million, the $5,000 represents 0.2 percent. I think it’s quite uncommon for a farm business to have an annual committed budget for professional development. But, why not? How much would you spend to protect a $2.5 million dollar investment?
I spent a bit of time looking at some financial statements and came to a range of 0.5 to one percent of gross revenue as a guideline for an annual budgeted amount. (There may be some industry standards that would better define this. If they exist, I’m not aware of them.)
It also makes sense to me to include a minimum overall operating efficiency cap to buffer the investment for tougher years. Again, you could use any percentage, but in the financial statements I reviewed, two percent seems to be a starting point. The concept is that the farm would spend one percent of gross revenue annually on professional development. The annual investment would be capped at two percent of EBITDA (earnings before interest, taxes, depreciation and amortization) where this value was the lower of the two. Multiple year trendlines and averages can also be factored into the calculations.
Other variations could be applied. You could set aside different budget values for management and employees. The professional development plan and budget would form part of an overall human resource management plan. It could be used as a recruitment benefit.
I received permission from a farm family to include part of their professional development plan. It is included below.
To invest in professional development and present opportunities that encourage team members to participate in educational opportunities; to achieve success of the farm business; to increase shareholder-owner value; and to invest in the legacy of the farm.
To a maximum of xxx annual dollars based off:
- A percentage of gross revenue of the business with a minimum limit cap based on operational efficiency (EBITDA / gross revenue).
Employee is responsible for all bookings, research and applying for available government funding for tuition and travel expenses, for creating a budget number, and is required to present a budget proposal. Employee must pay for tuition or registration fees, plus travel expenses and will be reimbursed upon completion.
Financial terms and conditions
Financing will be available to cover 100 percent of the tuition costs and 50 percent of the travel expenses (flights, rooms, and meals). Participant is responsible for financing the remaining 50 percent of their travel expenses.
For every year committed to the farm, the participant will earn a 33 percent credit on the amount he or she has paid.
Terry Betker, PAg, is a farm management consultant based in Winnipeg. He can be reached at 204-782-8200 or email@example.com.