Dad's wisdom: Lessons from the farm and the ledger with Paul Neiffer

Chris

Barron: Hey everybody, before we dive into today's episode of The Aggie Pitch, I want to invite you to check out our exclusive podcast, 19 Minutes. For just $30 a month, you'll have access to high-level business insights and new episodes that are released on the 9th, the 19th, and the 29th of each month. Topics include finance, cost of production, team health, taxes, collaboration, and much more. With 77 episodes already available, signing up gives you immediate access to all past and future content. Click on the link in the show notes and subscribe and start boosting your bottom line today. Welcome everybody to another episode of the Ag View Pitch.

Today we're going to do a Dad's Wisdom with the famous Paul Niefer, the tax CPA, but, uh, somebody who's been involved in agriculture his whole life., and I want to ask a lot of questions on just observations of what works, what doesn't, just things that he's observed over the years. And also start out, Paul, welcome. Thanks for being here. I'm—

Paul

Neiffer: I, I think I'm looking forward to this. Yeah, I'm not used to, uh, you know, I'm starting to sound like the old guy.

Chris

Barron: Yeah.

Paul

Neiffer: So, but that's okay.

Chris

Barron: I'm starting to feel like that in our, our farm operation. I was thinking that the other day. I'm like, I think I'm the oldest one now in the operation, which is— that happens, right?

Paul

Neiffer: Yeah, it happens eventually. Yeah, it's better than the alternative. Yeah, I'll say that.

Chris

Barron: Exactly, exactly. Well, let's start out with a little background of yourself. So you grew up on a farm. Talk a little bit about where you grew up, a little bit about your parents, what, you know, what, what it was like growing up on the farm where you were at. Give us a little background.

Paul

Neiffer: I think, I think we all have some unique stories. Uh, again, I grew up in southeastern Washington state, little town of Dixie, Washington. It's about 10 miles east of Walla Walla. So I think a lot of people probably have heard of Walla Walla on the edge of the Palouse Country. So we had very, very steep hills. You know, I grew up operating tractors and combines on 50 or 60% slopes. Matter of fact, Chris, you've been out in that area. I think you can verify it.

Chris

Barron: Yeah, it's steep.

Paul

Neiffer: It's steep out there and a little bit unique. My parents were older. My dad was 46 and my mom was 35 when they got married. They had me 9 months and 14 days later, and then they had my brother exactly 10 months to the day after that. And I remember my wife, when we got married, she asked my mom, why in the world did you have Paul and David 10 months apart? And my, my mother said, well, it wasn't my idea. So, you know, that's so— and then my sister was 13 months after that. But, you know, I'm typical farm boy. I mean, I was on the tractor at 6 months old. I was on the combine, you know, laying on the floor sleeping. And so I started operating. I think I was driving tractor and we had Caterpillar tractors because back then, like a John Deere 4020 would probably tip over on those hills. So we had to use Caterpillar tractors before the four-wheel drive came out.

So I was driving tractor for my dad probably at age 12. And then combine, I think I started full-time at age 14. But it was interesting. My dad actually was very handy, you know, definitely repaired all, all the equipment, everything. Matter of fact, overhauled engines. I would help him with that. But one year in the wintertime, he was in the shop and he was operating a drill press, you know, a drill press where you bring it down. And he had on a nylon coat and, and it actually caught his arm and pulled his arm into the drill press and basically broke this arm, this, this bone here in about 8 or 10 pieces. And was able to unwind it and brought it back. He got into the house, collapsed, and my mom brought him into the hospital. He's in the hospital for a couple of weeks and then was back, you know, doing spring planting. Typical farmer.

And then the next year, actually, I was operating the combine and for some reason one of my friends had asked me, hey, Paul, do you want to spend the night with me? And I asked my dad, is that okay? He said, sure, just come out in the morning. While we're on the way out in the morning, And somehow my, my uncle interrupted me or found me and said, hey, your dad has flipped over the combine. So, so we get out there and my dad, sure enough, had flipped over the combine. It was a 2-day-old combine and the transmission gear— we found out later on, actually, a transmission gear sort of blew up and suddenly he's going backwards, turned it into the hillside too much and flipped it over and then had a throttle lever stuck through his leg. And through the thigh. And then the EMTs finally showed up and they said, well, how are we going to get Otto out of the combine?

And finally they handed a hacksaw to my dad and he had to hacksaw himself out of the combine. And I remember telling that to, quote, a city slicker, and the guy goes, your dad had to cut off his leg? And I go, no, he just had to cut off the throttle lever. So, so, you know, you sort of grow up with that. And my dad only had an 8th grade education. My mother was actually the math brain in the family. That's why— where I get it from. She went to college and so on. But interesting, my mother did did not speak English until she went to grade school. Her parents were Norwegians. Her dad had immigrated from Norway. You know, my dad grew up in the Dakotas, was, uh, only had an 8th grade education, actually during the Depression, hopped on a freight train and came out to the Pacific Northwest. So you sort of have that background that sort of, you know, that melds you.

And, and I remember my— when I was getting ready to go into college, I really wanted to farm. You know, that, that was sort of the passion I had. Now, my parents were getting ready to retire. They owned all the land free and clear, didn't have any debt. But, you know, I was talking to my dad, and we're sort of calculating, well, you know, I can't really— we don't have a large enough farm at that point in time to support both my parents in retirement, myself. And my dad, because I think of the fact that he only had an 8th grade education and so on, he really pushed me to be a CPA versus being a farmer, you know, that, and of course, that was the early '80s, you know, times were sort of tough back then. So that's essentially why I ended up going into becoming a CPA instead of going into farming, was a couple of those reasons.

Chris

Barron: So at that time, what would you say, you know, growing up on the farm, you know, obviously you worked a lot with your dad. Is there any like, um, like outstanding lesson or something that he taught you, even though an 8th grade education, you know, just experience and wisdom, right? It's kind of this wisdom conversation, you know. Is there any kind of key things that he embedded in your, your brain and your mind?

Paul

Neiffer: Yeah, I think the one thing I noticed very early on about my dad, maybe compared to some of my uncles that were in farming too on, on my mother's side, um, my dad was a hard worker. My dad never took really time off. He was willing to be there early on. Uh, you know, I had— I, I would notice a couple of my relatives, maybe my dad would be ready to start at, you know, 6 AM if he needed to, and they'd be rolling into the field at 10 AM and, and wonder why in the world we got our stuff done and they're still out there working, you know. So I, I think just the, the value of putting in time, putting in effort. Uh, you don't always have to be the smartest. Matter of fact, You can be too smart, I think, at times. Uh, you know, you just have to put in the work and, and do it right.

Chris

Barron: Talk about being too smart, that makes me think of the information overload that we have in today's world, right? It's so many, so many things you can calculate in so many ways to look at different things.

Paul

Neiffer: It's paralysis by analysis.

Chris

Barron: Yeah.

Paul

Neiffer: And, and I think that's one thing in, in my career I've always, I you know, probably maybe to a fault at times. I'm very quick at doing things, you know, I can be a little bit impatient. But what I've learned is get something done. If it's wrong, you can fix it. You know, if you don't get anything done, it's wrong because you haven't gotten it done.

Chris

Barron: So, right.

Paul

Neiffer: So I have always been a firm believer of, you know, you still got to do your analysis. But once you make a decision, get it done, you know.

Chris

Barron: I, I—

Paul

Neiffer: for sure.

Chris

Barron: Yeah. All right, so talk a little bit about your, um, your mom too. And, and, you know, you said she was the math brain of the, of the family, which, you know, you got that. Yeah, you know, definitely got that from my mom. Math is kind of a fun thing for you. Talk a little bit about some experiences with your mom and any, any lessons you got from, from—

Paul

Neiffer: yeah. So, you know, one of the interesting things for the younger listeners out there, wouldn't even they probably wouldn't even know what we're talking about. But I still vividly remember when I'd go shopping with my mother at the grocery store. You know, back then they didn't have barcodes, didn't have scanners. You know, you'd punch in like if it was $1.32, you'd punch in 1, 3, and 2 on the thing and then go like that almost. And my mother, very early on, I would notice she's actually calculating what the amount's going to be. And she'd be within a nickel almost every time. And then starting at about age 7 or 8, I'd actually be racing my mother to see who could calculate the quickest. So, you know, and actually my mother was very proud when I'd actually beat her, so it didn't happen all the time. But, uh, so, and then she actually prepared tax returns.

So I think that's probably maybe why— another reason why I might have become a CPA is because my mother would do about 10 to 15 tax returns for friends and family, and she was very meticulous. Matter of fact, uh, maybe to a degree, maybe a little OCD. She had a mechanical pencil that if you lost that mechanical pencil, you were in trouble. So, but I think what I learned from her again is it doesn't matter how you grew up, it doesn't matter what your background. And like I say, she didn't learn English until first grade. She— her graduating class was 3 people, and she was the only girl, and the other 2 boys were related to her. So I mean, she was a little bit sheltered in a way. And then end up going to college. So that was good. But I think the idea again, that it— and they were a firm believer, it's not what you make, it's what you keep.

My parents had, at the peak, they probably farmed, we probably farmed 1,000 acres, but they owned about 400 acres free and clear. And compared to other people in the area, maybe we were a little bit on the smaller side. But I can tell you from a net worth side, they my parents actually probably did as good or better because they were very, very frugal. I mean, I remember taking— until my brother and I got a car, we took 2 vacations longer than 2 days my whole, my whole, you know, from age 0 to, to 16 until I got a car. So, you know, frugality was important to them. Now, I'll admit that, you know, this generation, including myself, I'm not as frugal as my parents, and that's probably good. To some degree, but that was very important.

Chris

Barron: Interesting. So, um, so that's kind of your formative years, you know. You went off to college and, and kind of started figuring out what it was you wanted to do. You met Patty. Talk a little bit about your, your wife and kind of getting through college and kind of that stage of life, some of the things you, you learned during that stage.

Paul

Neiffer: Yeah, it was interesting, uh, I met my wife, actually, my parents were very— we went to church Sunday morning, Sunday night, Wednesday night, you know, we were in church quite a bit. And my wife, her folks didn't go to church. But at age 12, her mother wanted Patty to have a church experience because she was worried about her running into the wrong people, let's say. So she ended up contacting the church I was at. And I actually was driving the school bus or the church bus at age, I think, 16, you know, and these days you'd probably get in trouble for that. But I was driving the church bus and she came on the, on the bus and we got to know each other. When I was a freshman in college, we started dating. She was 15 and I was 18. According to her, she dumped me. So, you know, that was, that was interesting after about 3 or 4 months.

And then a couple years later on, uh, she was going to college where I was, in the same town, but we weren't going to the same school. And it was interesting, we had a Christmas party and there's this other girl that really liked me and she was chasing me with the mistletoe and I was trying to get away from her. And my wife, well, at that time she wasn't my wife, she came over and she planted a kiss on me and I'm like Hmm. So we got married 6 months later.

Chris

Barron: Oh, wow.

Paul

Neiffer: Yeah.

Chris

Barron: So it was fair.

Paul

Neiffer: That was a—

Chris

Barron: that was an impressive kiss.

Paul

Neiffer: Yeah, that was an impressive kiss, I guess. But, uh, you know, interesting. And then we ended up, uh, that was my— between my junior and senior year of college, we ended up getting married. Uh, I finished, uh, college and then went to work at Moss Adams, which is a good size right now. They'd be the top 10 CPA firm in the U.S., but we went to I went to work there in Yakima, Washington. I was there for about 9 years, and that time we ended up having— ultimately we ended up with 4 boys. We had a— and they're about 2 years apart. So right now the oldest would be 38, then 36, 33, and 31.

Chris

Barron: So, so let's, let's hit that phase for a minute here then too, because a lot of our listeners are in the process of raising kids Um, what, what's some wisdom, uh, raising kids? You raised 4 boys, which, you know, that, that would have been interesting all in and of itself. So talk a little bit about some—

Paul

Neiffer: yeah, and I think we did a good job. You never know. Um, you know, we raised 4 boys and we also raised, or helped raise, I'm going to call about 8 to 10 strays. I call them strays. Uh, you know, we had, we had, uh, friends of our, of our sons that for various reasons, maybe they were having an issue at home or whatever it might be. Matter of fact, one summer we had 9 boys living with us, including our 4 boys. So the grocery bill got a little bit high that summer.

Chris

Barron: So that's why you had to be a CPA instead of a farmer.

Paul

Neiffer: Yeah.

Chris

Barron: And raise all those kids, although you had— you had a workforce. Yeah.

Paul

Neiffer: Well, and my wife— and you know my wife, but she's definitely— I'm going to call her a boys mom. I mean, boys would confide in her. We tried to set boundaries, but we didn't try to constrain them. You know, it's like, okay, here's your boundaries. If you exceed those boundaries, we'll deal with it at that point in time. But as long as you live within those boundaries, you— we were good with that. Again, I grew up in a church that was pretty conservative. And I, and I remember when those kids that had parents that were too conservative and those kids ended up going off to college on their own. They got a little bit too wild. So, you know, I was— we were trying not to be too conservative, but we also wanted to make sure that they knew what the boundaries were. So I think we were fairly successful in that.

Chris

Barron: That's awesome. So any, any good lessons, anything you would tell people when you're raising kids? Do this or don't do that. And I like the idea of, you know, making sure you give them enough freedom so they can explore and—

Paul

Neiffer: yeah, because themselves, what you find out, and especially I had some relatives that are that way, that they were so restrictive that once they finally were on their own, they went too far. So it's sort of like rubber bands. If you pull too much one way on the rubber band, when you let go, it's going to snap the other way. So I think it's just— what I find is you can be the best parent and have the worst kids. You can be the worst parent and have the best kids. I mean, The reality is, you know, you do your best, you hope for the best, and likely you're going to get it. Another thing, I mean, it's a little bit funny. If you find your kids are dating and you really like the person that they're dating, you tell your kids you don't like them.

And then if you don't like the person, then you tell the kids that you like them because typically, typically they're going to do the opposite. They're going to do the opposite. Yeah. So at least in that, in that teenage years. Yeah. So interesting. Yeah.

Chris

Barron: Yeah, they, they, they seem to have their own in the teenage years. In my experience, too, you know, it seems like they have their own mind and they want to have their own mind. So whatever mom and dad think, I'm going to think different. So that's a good point.

Paul

Neiffer: Exactly. Now, that's again, I wouldn't suggest that on a serious note, but I did find out that, yeah, if I like somebody, I probably wasn't going to say that. Very often. So I learned that fairly early on.

Chris

Barron: Gotcha. All right, so, um, real quick on, on Patty, any, any advice on, on marriage? Because, uh, you know, and, and we're gonna get into the farm stuff here in a minute, but, you know, you, you, you guys have had a great relationship, 4 awesome kids, and talk a little bit about, about that, that side of it and the support that you need because, you know, you're gone a lot, right? You're kind of even though you don't farm, you kind of do. You're farming the farmers. Yeah. In other words. Yeah. And so, you know, you have a spouse that is very supportive and backs you up. Talk a little bit about the importance of that.

Paul

Neiffer: Oh, yeah. I'm going to say, you know, being a CPA during tax season can be very onerous on a married family.

Chris

Barron: It's like harvest.

Paul

Neiffer: Well, it's harvest for A long time, 18 weeks, or spring planting. It's like spring planting for 18 weeks, right? I only heard my wife complain once about, you know, the 40-plus years I've been in. During— just to give the idea for the people out there, for many of those years, I would get up at 2 AM and work till 6 PM, 5 PM, 6 PM. 7 days a week, from the middle of January to April 15th. I mean, that's, that's the type of hours that we're putting in. And but I also made sure that when my kids have sporting events, you know, basketball, football, golf, whatever it might be, I wasn't going to miss it. So, but again, my wife was very supportive and made it very easy for me to put in those hours when needed.

Matter of fact, she made— she probably made other males a little bit jealous of the support that my wife would give because she never complained to other wives about the hours that— at least I never heard it, right? So I think that was very important, is that— and I know it's a cliché, but it's true: happy wife, happy life.

Chris

Barron: Ah, yeah, yeah.

Paul

Neiffer: So And then for the listeners out there, you know, my wife about a year and a half ago got— well, about a year ago actually got diagnosed with non-Hodgkin's lymphoma cancer. We got through the treatment. She's actually growing her hair back now and nice. And she's doing very, very well. And the biggest concern that she had during that whole process wasn't for her. It was for me. She was worried that I wasn't going to be able to really take care of her. And she was, I think, pleasantly surprised that I actually know how to do housework, doors and so on.

Chris

Barron: So you can do that stuff if you have to, right?

Paul

Neiffer: And it's a 50/50 teamwork, right? Yeah, that's, you know, that's, that's the important one.

Chris

Barron: Yeah, that's awesome. Yeah, that's great. I'm glad she's on the mend and—

Paul

Neiffer: Oh yeah, she's doing great. That's awesome.

Chris

Barron: That's great. So let's dive into— shift gears a little bit here and dive into some of the lessons over the years. So, you know, you started as a CPA. I assume you were working with farmers right out of the chute a little bit?

Paul

Neiffer: Yes, definitely. So the interesting thing about Yakima, Washington, you know, that's at that time, either that or Wenatchee is the apple capital of the US. I mean, so we had a lot of farmers, hops and so on. Didn't have a lot of corn and certainly no soybeans. But so probably 80% of my work was dealing with farms or businesses related to farming. Now, I ended up moving to Bend, Oregon for a few years, and there really wasn't much farming going on down there. But when I came back to Yakima, you know, then we were doing a lot of accounting related to farming and so on. And then starting in 2009, so that's what, 16 years ago now, right about this time 16 years ago, I was sort of looking around on the internet, you know, and. And there was some blogs coming out on professional accounting blogs, but there was nothing on farming.

So at that point I said, hey, I'm going to start a blog. You know, I didn't know how to do it, so I got somebody to help me. And so I started the blog, you know, Farm CPA Today at that point in time. And then because of that, you know, people at Farm Journal reached out to me asking if I wanted to maybe write a couple columns and then— or articles. And then I started the column at Top Producers. So that was really I would say in the last 20 years is where I really started focusing really on the thought leadership for ag taxes and so on and so forth. And of course, when I merged in with Clifton Arson, Larson Allen about 15 years ago, that made it even more sort of critical mass. I had more behind me that I could— I didn't have to worry about all the back office and all that stuff that sometimes can be a pain.

Chris

Barron: Yeah. Interesting. So, um, I want to ask you a little bit about, you know, the last 20 years then as you worked with farmers. You obviously not only get to see their financials and decisions, and especially if you work with the same operation for a number of years, you can start to build a trend and you can start to see, okay, this operation that I'm working with is doing this really well, this operation's challenged in this area, and there's some fixes that they could do. And I'm sure you saw things from 30,000-foot view that, you know, sometimes when you're in the middle of it, you don't see it or you don't recognize it. What are a couple of the kind of key things that you saw that farmers could improve upon that they were maybe doing that, you know, could help the bottom line a little bit better if they were more focused on something or paid attention to an area more?

Paul

Neiffer: Well, and I think, you know, I've seen it fairly often with family dynamics. If there's more than one person in the operation, you know, If it's a sole proprietor and they're doing all the work, you know, that's one thing, but when you start having more than one person, it's the communication, it's the family dynamics that gets more and more important. I mean, I've seen what started as a very successful operation that was done by dad, and then you brought in two sons or a son and a daughter, and suddenly blows apart because of communication issues or the dynamics. One thing that I've, I've noticed, you know, because I've been involved now for 40-plus years, the interesting thing is when times are good, that's when you need to be cautious.

And when times are bad, that's when you actually need to be optimistic and actually go out and maybe do something that you don't think you can, right? Go out and attempt something. I've seen so many operations when times are really good, they leverage up too much. They might take on too much. And, and then when times get tough, they've gotten into that death spiral almost in the operation. So that's, that's one thing that again, when times are good, be a little cautious, bank some funds, you know, don't necessarily buy the lake house and the boat and everything else to go with it. And then when times are bad, that's when you want to be a little bit more aggressive. So that's definitely one thing that I've noticed.

Chris

Barron: That's interesting. So, you know, when you think of some of the operations out there that, you know, as we record this, we're in, I would say, a trough, you know, an economic trough right now. How cautious should you be though when times are tight, because, you know, if, if working capital is an issue, it does take away a lot of times, especially if it's an economic thing. Are you talking more about that, or are you saying that, you know, let's just say that it's a farm operation, multi-generational, assuming that their communication is reasonably good, of maybe taking on some additional custom work or doing some extra stuff to generate additional revenue? Is that kind of what you're talking about?

Paul

Neiffer: I'm saying both that, then also when, when times are tough, um, that means it's tough for everybody. And there's opportunities are going to arise when times are tough, especially if you bank some capital when times are good. You know, you've banked that, that extra capital that allows you to step in and grab that opportunity. It's at a cheaper price. It's going to be, um, you know, you're going to be able to maybe cherry-pick it a little bit more. You know, when times are good, it's hard to rent ground. I mean, when times are good, you're going to be paying, you know, at the peak. Whereas when times are bad, hey, this ground's up for rent, this ground's up for rent, I get to pick which one I want. So that's that. And then also, like you mentioned, if times are tough, you know, that's when you need— you have time, you know, you have time.

So go out there and, and either find like, say, custom work or do something to make it not so tough. But it's just, I think the perception is when times are great, that's when you're going to make the most money. And when times are bad, that's when you're going to lose the most. And I think the shift should be a little bit of the opposite, just a little bit.

Chris

Barron: Interesting. So I want to back up to one of the things you said I thought was interesting around the idea of these farm operations that are multigenerational. Right? So you got grandpa, dad, the next generation, the kids, and, and maybe even some of them are at the cousins phase, you know, where you have two brothers that are farming together, two, you know, two siblings farming together. Now all of a sudden, you know, you've got the cousins phase, and, and that even complicates things more. As an observation, you know, communication is— I always tell people with our experience, communication has a lot to do with structure, has a lot to do with clearly defined roles, responsibilities, and ultimately decision rights of, you know, who gets to make what decisions in what division of the business. And typically that's not clearly defined.

As you've worked with operations over the years, have you seen an improvement in that? First part of the question. That's first part of the question. Second part is, Um, what percent of people or operations do you think actually have that stuff or have actually sat down and clearly defined roles, responsibilities, decision rights, and structure?

Paul

Neiffer: I'm gonna say it has improved, but when we say it's improved, it's gone from maybe 5 or 10% of the farms having that 15 years ago to maybe 25% having it now. I mean, that's still I would say 1 out of 4 is probably at the high level. Now, obviously, a lot of the farms that you and I work with, um, you know, might be a higher percentage than that, but just overall, I, I think it's at that, uh, at that level or even less. Now, one thing I think people need to understand is if at some point, you know, let's say you have cousins farming together and they're not getting along Splitting up the operation is not a failure. I think a lot of times it's viewed as a failure. No, at some point the best thing for the operation is to split it up. You know, I, I think, um, sometimes they want to keep it together, and that's the worst thing can happen.

Sometimes the best thing to do is split it up.

Chris

Barron: Yeah. And, and I'll get your take on this. My observation has been it depends— the, the The odds of success for the Cousins phase or for the next generational phase has a direct correlation to the business structure and formality and professionalism of the prior generation. And so if that generation sets up a professional environment, clearly defines roles, responsibilities, and then has transparency to transparently show these are the things that we're you know, that we're going to do. Here's what I need to take out of the business. And so having said that, you know, um, talk a little bit about the tax planning and the, the income planning that probably needs to be involved in that, because you see the, the number side of that, the financial side. And I think a lot of times it's scary, right?

The senior, you know, so the senior operators that are watching this and then the junior ones that are watching this saying, how do I get mom and dad to even listen to me. They need to do this. They needed to do this 5 years ago. You know, talk a little bit about, you know—

Paul

Neiffer: Yeah, the more successful ones actually calculate what that deferred tax liability is almost on an annual basis. So it's not a surprise. You know, the ones that don't plan for it, they are surprised by it. The ones that understand, hey, I know that I've been able to prepay, I've been able to defer, and I know that year of the last year I farm, I'm going to have all my expenses in the year that I harvested, but then I'm going to sell 80% of that crop the next year and I'm not going to have any expenses. So they're prepared for that. And there's various things that we as professionals can help them, you know, whether it's a charitable remainder trust or a cash balance plan. You, if we have the appropriate amount of time, you know, we got a 5 or 10-year window, we can help that.

And then another thing I think it's important for them to understand, like, like your son Sloan, you know, he's put money into a 401 or put money into an IRA. And maybe for a lot of farmers, the idea, hey, I could maybe put $5,000 into an IRA starting at age 20. Well, if you do that for the next 40 years, you know, by the time you get ready to retire, you're going to have a fund of $5-10 million, right? It can be that high.

Chris

Barron: Yeah, for sure.

Paul

Neiffer: And it's a whole lot easier to transfer that farm operation to the next generation when you have a retirement plan. When you have a retirement plan. Whereas if you just reinvest everything back into the farm operation, not separate, but reinvest it back in, Yes, you have it, but that compounds your tax issue. It just makes it even a bigger issue when you, when you try to get out. So now, right now, under the current tax rules, sometimes the best thing we tell clients is you need to die. You know, that, that usually cures the tax issues, but they don't want to hear that.

Chris

Barron: So, you know, it's not a fun recommendation.

Paul

Neiffer: No, no, it's not a fun recommendation. Now, some of your heirs, they're waiting for that.

Chris

Barron: Yeah.

Paul

Neiffer: You know, so I think it's You know, the ones that understand it. I've worked with many of the clients out there. We actually, either on an annual or every other year basis, we sit down and we say, okay, here's all your— you know, you did these prepayments, you did these deferrals, you got this equipment, you fully written it off. We add it up and we say, okay, that's a $3 million deferred tax liability. Maybe in the future we want to get that down to $2 million and then we're going to get it down to $1 million. And then we're going to retire. So, you know, those are the things that we work with.

Chris

Barron: Yeah, it's interesting because everybody's situation is so unique. You have some operations that have more of an infinite look, like this, this legacy and this farm has been planned to go on infinitely. Yep. And then you have some that are like, you know, I really don't want my kids to farm, or the kids aren't interested.

Paul

Neiffer: And then that's becoming more of an issue.

Chris

Barron: I mean, I think creating opportunities for those listening to this though, probably too, right?

Paul

Neiffer: Yeah, exactly. Yeah, that allows them to go out and pick up that ground because nobody, you know, that family doesn't have— they want to come back and farm, you know. And I think that trend is not going to get better, it's going to get worse.

Chris

Barron: Yeah, yeah, it's, it's definitely an opportunity. So, um, it's just interesting to me that, you know, we're talking numbers with a CPA, but you come back to one of the biggest challenges is communication. And I always tell people that, you know, you can get all the numbers right and people can still screw stuff up.

Paul

Neiffer: Oh, it's easy. Matter of fact, you know, the interesting thing about being a CPA is a lot of times about 25% of our, our work is not numbers, it's psychology, or it's marriage counseling, or It's, it's a lot of times I know more about their financial situation than their spouse does, you know. And, you know, it's— I've many times I've had somebody call me up and say, hey, Paul, we're thinking about selling this quarter section. And I go, that's the one that you bought over there and you paid like $3,000 an acre for. How do you remember that? Well, I can remember that, but I can't remember your name. Yeah. So you remember the numbers? Exactly. I remember the numbers. So You know, it's, it's, it, you know, that's part of the deal of being a good advisor is it isn't just numbers. It's, it's, it's the communication.

It's helping them understand, hey, maybe you want to think about something different. You know, that's, that's the important thing.

Chris

Barron: Yeah. I've got a question for you along the lines of capital, uh, investments. Um, in your opinion, um, What kind of a— what grade would you give the typical operation? And I mean typical. And then we'll get to the people that are probably listening to this. Okay. Because I would— I'm assuming you're going to grade them a lot higher, but just the typical farm operation and their ability to invest in the appropriate capital that's going to generate the highest rate of return for their business. What would you give them for a grade? A, B, C, D?

Paul

Neiffer: I'd give them a C, maybe a C+, maybe. You know, it's, it's, yeah, that's—

Chris

Barron: and so, so explain on that a little bit. So they're buying capital items. What are they, what are they buying, and, and what should they be buying instead of what they're buying?

Paul

Neiffer: Well, again, we come back to sort of one of the things I like to talk about, contribution margin. You know, they're not really using that type of analysis. A lot of times they're just buying what maybe the input person said or what their neighbor was doing. And really, they really need to be sitting down and going, okay, if I do this decision, here's my return or my contribution margin versus if I do this decision, here's what my contribution margin or my decision should be. So that's why I give it a C. Now, I'm going to tell you a lot of non-farm businesses are probably a B- or a C too. So it isn't just farmers that that way.

Chris

Barron: It's just business, right?

Paul

Neiffer: Yeah. But again, it's a little bit of when is your farm operation a business and when is it a lifestyle? The ones that it's more of a lifestyle and typically they're going to have off-farm income, you know, either the spouse is working full-time or maybe they're working part-time too, versus, hey, this is really the business. We want it for a long— we want it for multiple generations. You know, we're reinvesting the profits into the operation, we're, we're thinking about going into this business or this business. Those are the ones that deploy capital much better than what I would call more the lifestyle farmer.

Chris

Barron: Yeah. And so the, the point I'm getting at too, and I, and kind of asking, is it seems like there's times when a typical farm is going to buy something for quote-unquote tax reasons you know, and I'm sure you see that, to try to avoid taxes. But, you know, what's your advice based on your observations, the best way to manage the tax and mitigate tax consequences, but yet understand you still got to pay them?

Paul

Neiffer: Yeah, and one of my sayings, and I think I came up with it, I've never heard it before, but I think I came up with it, is working capital that you've paid taxes on, you know, you've paid the tax on it, that's your working capital. You can do whatever you want to with it. If you've not paid taxes on your working capital, it's either Uncle Sam's, you know, part of it's Uncle Sam's or part of it's the bank. So I think there's a— and it's a little bit of a teeter-totter. I mean, certainly if you're going to expand, you're going to have working capital that's not been taxed on. So I think it's important to understand that you don't want the tax tail to wag the tail, wag the dog, you know, that's, that's certainly been out there.

I mean, I've— matter of fact, I remember I had a meeting with a brand new farm client, and we're walking through the barn, and there's a brand new tractor sitting over in the corner. And, and, and the wife sort of nudges me and says, Paul, look at that tractor over there. And I go, yeah, it's a nice looking tractor. I mean, it was a nice John Deere, I can't remember what it was. And she goes, we bought that like 2 years ago because we had to save on taxes and we've never used it. It just sits there collecting dust. Well, that's, that's the issues that we have at times. It's too easy for farmers to get in that trap. Matter of fact, I know when I was at TPAP and I've heard Dick Whitman say this and I agree with a little bit, you know, the worst thing that's really happened to farmers is the cash method of accounting. You know, it allows them to Prepay, prepay, defer, defer, defer.

Now again, within reason, I'm still going to promote it. I'm still going to use it, but you just need to understand what, what is the appropriate amount.

Chris

Barron: Yeah, and like you said, it's the understanding annually what your deferred tax consequence is each year so that you know at least where that number is and can you, can you accommodate it. So I want to kind of work toward wrapping up with a topic around the idea of pre-retirement, not retirement, but pre-retirement, and then eventually retirement. But I have a different term for that, which, you know, you and I are friends with Mike Finley. Yep. And he wrote a book called Graduation. And if anybody wants to read that book, I highly recommend it. It's, it's called Graduation, and it's about that phase of your life where you decide you're going to slow down and you're going to do some things differently. You're not going to carry all the torches. You're going to hand some things off and you're going to kind of enjoy life, but yet still be a mentor.

And I always tell people, you know, you, you need to transition from being a, you know, a leader to a mentor. And there's— they're kind of two different things. So I want you to kind of expand on that a little bit in two parts. The first part I want you to do, and then I'll hit you on the last part. First part, is with the young people. How do you— how would you advise the young people to approach the senior members of an operation to encourage, motivate, direct them to hand the torch over on some things, be okay with, you know, transparency, sharing stuff that needs to be shared, you know, because I get that question a lot of You know, I, you know, my dad just doesn't want to talk about it. You know, any, any thoughts or any observations you've seen where people have been successful with getting that motivation, getting that process started?

Paul

Neiffer: Yeah, I, I think first is don't be frustrated. You know, you know, your, your dad or your mom, whoever it is, um, you know, it's taken them 30 or 40 years to be at that point, and, and if you're going to What you don't want to do is be pushy about it. I mean, I think the key is to have a conversation. It depends on the person, but everybody's a little bit different. But, you know, if you push it, they're going to push back. It's just like two magnets. You know, if you got a North Pole going against the North Pole, you're going to get friction. Whereas And sometimes, you know, you want to have the communication with the spouse. Hey, you know, you've been married to this person for 30 or 40 years. You know, remember, in the pre-retirement, that's what we call the go-go phase. And then you're going to have the slow-go phase, and then you're going to have the no-go phase.

So, you know, you want them to take advantage of that go-go phase. You know, like in the case of my wife and myself, you know, a year ago, we thought, hey, we're going to be in the go-go phase. And then, you know, my wife gets diagnosed with cancer. Basically, that was the no-go phase for about a year. And now we're back to, you know, approaching again a go-go phase. So, you know, remember, you get one life, you got to take advantage of it, and you got to help your parents or that parent understand what are the other options that really appeal to them. You know, so like my case, I'm too easily bored. You know, I'm not going to retire, you know, anytime soon. I enjoy doing what I'm doing. But then I also like to spend time with my kids and my grandkids. And, and I'm going golfing in Scotland in July. So we're going to have some fun.

So it's important to, you know, help pull it out of them. Not push it into them. So, you know, help, help them understand, hey, what is that next phase? And like you say, you need to under— Dad needs to understand, hey, you're going from the CEO to the chairman role, you know. What's our transition to going from that CEO up to the chairman of the board, so to speak?

Chris

Barron: Yeah. The other thing that I, I would add to that, I love those comments because I think it also ties in just Showing appreciation and, um, and well, appreciation and inclusion, I guess. I've got a client that I respect and work with in Illinois that has always said that. He's always said, you know, I just want appreciation and I want to be included.

Paul

Neiffer: Yep.

Chris

Barron: So I think as the next generation starts to do stuff, maybe they include the senior generation and tell them, you know, they're sending a text message to the employees, include Yeah, yeah, you know, yeah.

Paul

Neiffer: And Dad, he may not even care about it, right? But it's just nice to be— yeah, this is what's going on, right?

Chris

Barron: And I, I think that's just the respect that I think sometimes the younger people don't recognize. There's a level of respect that's viewed, and, and it's not even words or things you even have to say as much as it is just the actions that—

Paul

Neiffer: yeah, well, and I think the other thing too is, is generations, um, change. You know, if we look at my parents, of course my parents were— my dad was born in 1912, so I mean, that's, that's even a little farther back. Um, that generation didn't really expect anything for the next 40 or 50 years. You know, they expected, okay, I'm gonna, I'm gonna help my dad, I'm gonna work, I'm gonna work, and I'm gonna work. Now our generation, maybe, you know, We'll wait 20 or 5 years. Well, you know, our generation, 20 to 30 years.

Chris

Barron: Yeah, right.

Paul

Neiffer: Now the next generation, hey, we want it and we want it now. Yeah.

Chris

Barron: Yeah. Well, you have it. How come I don't have it?

Paul

Neiffer: Yeah, exactly. So, and that's not bad. It's just, yeah, it's just normal. It's, it's, well, think about, hey, in high school or junior high, I was on a typewriter. You know, computer was, I didn't even have a screen for a computer. It was on tape. You know, it's just how fast things move now. And with AI, it's going to be even more so.

Chris

Barron: Oh, for sure. Yeah, for sure. I want to stay on this pre-retirement graduation and stuff. Now, I asked you about the junior generation. What do they do and how do they motivate? Talking to the senior generation that's listening to this, and I think it's important that the younger people hear this, what's some advice? Because one of the challenges, I think, for farmers is that it's their identity. And a lot of them don't even have a hobby. You know, you go— you can go golf and there's, you know, you play football, right? There's, there's things that you've adapted to choose to do to enjoy life. And, you know, and you're still doing some tax returns because that's part of your identity, right? Yeah. Yeah. And so you're going to— you're still going to deal with numbers because it's part of your identity.

And I think the producers can still, you know, drive the planter, drive the combine, whatever.

Paul

Neiffer: That's combine therapy, right?

Chris

Barron: Yeah, right. And help the kids. But understand that just because that's your identity doesn't mean you can't enjoy life and still do some other stuff and not be afraid of that process. Any comments on that?

Paul

Neiffer: Yeah, no, I agree. And I think the other thing too, for that, that older generation, where the younger generation gets frustrated is when dad or mom says, well, I'm going to retire someday, you know, right? Versus having a timeline.

Chris

Barron: Yeah.

Paul

Neiffer: We need to have a little bit of a timeline. Now, if you're really saying, hey, I'm going to retire, I'm— when I retire is the day that I die, you know, that's fine as long as the next generation understands that and then they can react accordingly. But if the next generation just doesn't understand what the timeline is, then expect that generation to get frustrated. So, I think that's important to develop that timeline. Now, it isn't precise. It isn't I'm going to retire on April 1st of 2027. It's, you know, this is the goal. By about '28, '29, 2030, I'm going to be slowly phasing out, you know, something like that.

Chris

Barron: Yeah. And I think also, to your point, timeline, and then define what, what does retirement mean, right?

Paul

Neiffer: Right.

Chris

Barron: Does it mean you're gonna be here in the spring and fall to help, or are you saying see you later, or are you saying I'm going to be here all the time and I'll try to keep my mouth shut, but if I give you constructive criticism, just deal with it. Yeah. You know, I think that's sometimes hard too, because the senior generation comes in and is giving criticism, and I think we got to take it right, take it the right way.

Paul

Neiffer: Well, and then if you have employees beyond family, then I think that senior generation needs to understand, hey, if I have an issue, I need to share it directly with my kids or whoever it is, not with the employees. Good point. The employees need to understand Junior's in charge. If you're coming to me, I need to be able to say, well, you need to discuss that with Junior and I'm not going to overrule what Junior says.

Chris

Barron: Yeah, go to Junior and say, hey, I need employee number 4 to come help me do some yard work today before you go grab that employee and say, hey, you're going to help me today. And the employee's like, Yeah, with my boss.

Paul

Neiffer: Yes. Yeah, you know, yeah, you need to clearly define who is the boss and then live by it. Yeah, yeah. Defining it means nothing if you don't live by it.

Chris

Barron: Yeah, and I think that's where, you know, a lot of businesses have org charts, but having an accountability chart and who's your direct report— everybody should have a quote-unquote director and realize we're not perfect, right? Yeah, yeah, we try to be, but yeah, yeah, yeah. So Um, this has been an interesting conversation, digging some wisdom out of Paul Kneifer, the, the Farm CPA, who has worked with farmers for a lot of years.

Um, as we wrap up the conversation, I'd like you to just kind of give you the last word with respect to, you know, what's some advice you would give, you know, the listeners in terms of, you know, whether it's transition or, or just getting to the next level, getting to that next stage, because a lot of the operations we work with and that, that are listening to our podcast pretty regularly are pretty advanced operations, and they're constantly like, I want to get to this next level. Talk a little bit about, you know, just some advice, some wisdom that you've gotten to, to get to that next level.

Paul

Neiffer: I guess 3 or 4 things. Um, first, I, I think we need to understand it's not the destination, it's the journey. You know, you're going to make mistakes. Matter of fact, you learn better by making mistakes. And then I'm also a firm believer in what I call the 3-5% rules. You know, where you're trying to get to that next, you know, you got your mountaintop goal. Well, do something on the input side or on the cost side, the revenue side and the yield side that's 5% better. You know, shoot for those 5%. Don't be shooting for the home run because you're going to strike out too many times. I'm a firm believer that if, if every year you can compound each of those 5%, in 10 years, you know, that's 15%. That means in 10 years you're going to be 4x, you know, because of the power of compounding. So now that's not going to happen every year.

We know Mother Nature is going to, you know, jump in a lot of those times. But yeah, just key in on cost, revenue, and yield when you're talking farming. Just incrementally getting improvements in each of those, at least 5% a year if you can, um, you know, over a 5 or 10-year period, that's going to be enormous.

Chris

Barron: You don't— it's exponential.

Paul

Neiffer: Yeah, yeah. Like I say, it's 4 times over 10, it's, uh, what, 16 or more times over 20. So just, just realize that you don't have to swing for the fences, because if you swing for the fences too many times, you're gonna eventually strike out, and, and that may be fatal. So that's one thing that I would certainly suggest. And then the other thing too is bigger doesn't always mean better. Better means better. So, you know, try to make sure that your operation before you get bigger is better, you know. So if you can just work on better, bigger will come. If you work on bigger better may not come. So that, that's the way I look at it.

Chris

Barron: Yeah, awesome. That's all really good advice. Um, I'm gonna go against my, my better judgment and ask you one other question, even though I gave you the last word, and then I'll give you another last word. But, um, you had mentioned retirement, um, in terms of where you're putting your money in. You had kind of— and I meant to ask this earlier in the conversation— around the idea of having a diversified portfolio. And I meant to ask that, kind of forgot, but that diversified portfolio means essentially, you know, going into, you know, like Mike Finley talks about, taking a certain percentage of that money and putting it, putting it away. Um, any comments on that? I meant to ask you that too. I want to kind of have you talk about the importance of that or your observations of those who did that versus those who didn't?

Paul

Neiffer: What advantages? Definitely. I think, you know, because farmers tend to— well, they have 3 genetic chips implanted at birth. You know, one is thou shalt buy as much land as you can. Another one is thou shalt buy as much green paint, yellow paint, red paint, whatever color equipment. Yeah. And then finally, thou shalt not pay taxes. And so farmers tend to key in, I think, a little too much on rolling or putting all their money into farm assets. And I think the reality is the more that you can allocate to retirement assets, whether it's in a retirement plan or just a brokerage account, I don't care. The idea with that is when times are difficult in farming, times outside of farming tend to be a little bit better. And so that risk, you're mitigating that risk over time, especially if you start young at age 16, 18, 20, 22.

And do it for the rest of your life, you're going to easily build up, you know, millions of dollars if you do it correctly. And it's not work. I mean, matter of fact, the best thing you can do is just put the money in a diversified index ETF, whatever it is, and not look at it for 40 years. That's by far the best advice I can give anybody. Yeah, because when you look at it, that's when you make stupid decisions.

Chris

Barron: You're not buying and selling individual stocks, you're just putting the money in And you continue to put it in and let it grow.

Paul

Neiffer: And that really makes that transfer to the next generation a whole lot easier. You know, if you've built up that nest egg and, and you're saying, hey, this farm, we want it to be for multiple generations, it's not my asset, it's really an asset of the family. It's going to be much easier to transfer that to the next generation if you have outside sources. Now, a lot of times you're going to have farmland and you're going to get the rental income., but it's just going to make that transfer so much easier.

Chris

Barron: Yeah, for sure. Well, I think that was, that was really good advice. Any other last, last words?

Paul

Neiffer: Uh, no, I think, uh, you know, farming, it's, it's in our blood. I think it's in your blood. It's in my blood, even though technically I haven't been a farmer. Well, I guess the last 5 years. Well, I've been a farmer the last 5 years for sure.

Chris

Barron: When you're financially involved, you are farming.

Paul

Neiffer: Yeah, exactly. Um, you know, it is, it, it is a lifestyle, but it needs to be a business.

Chris

Barron: Yeah. So, uh, good, good advice. That's a— I always, uh, tell our clients that, you know, you're a business person, you just happen to farm. Yeah. You know, I mean, it's just one of the things that, that the business that we are in, I guess you could say.

Paul

Neiffer: So, well, and I will say the last thing is it's a whole lot more fun to combine on 50% slopes than this flatland out in this area. So yeah, I will say that.

Chris

Barron: Yeah. Well, it's probably more entertaining, especially when you're sliding down the hill along the way here.

Paul

Neiffer: So I've done, I've, I've, I've done that a few times. I've bucked a combine, you know, when the rear wheels are coming off the ground about 4 or 5 feet, it's a little hard to steer in that situation.

Chris

Barron: So, well, yeah, I would think you, you're steering with your brakes.

Paul

Neiffer: Yes, yes.

Chris

Barron: So you learn that right away and you find out how strong the, the feeder house is.

Paul

Neiffer: Yeah, exactly.

Chris

Barron: It's going to hold everything. Exactly. Sounds good. Well, hey Paul, I really appreciate the conversation. This has been a great Dad's Wisdom, CPA Wisdom, Farm Wisdom conversation. Really appreciate your time today.

Paul

Neiffer: You're welcome.

Chris

Barron: Thanks, Chris. All right. Thanks a lot. And again, thanks, everybody. We need to get back and be doing some more of these Dad's Wisdoms. It's just that Shay and I and Joe and Andy and Jeremy now have been pretty busy and you helping us as well. So, so as we get those going, though, if you've got a dad that you would like us to interview or you would like to be interviewed yourself, We like to get these dad's wisdoms out there because I think there's some really good lessons and things we can get out there to everybody. That said, thanks again to Paul. Thanks everybody, and we'll catch you again next time on the IP Pitch.