We recently held a Farm Business Planning workshop where we showed a humorously exaggerated slide show of a city slicker turned farmer. The class was asked to identify what about the example farm indicated that it was a hobby vs. a business. The beginning farmer was based partly on my farm and was closer to my own experience than I like to admit. After evaluating the sample farm, participants were asked to identify what they were doing that was “Hobby Farming” and what they were doing that was “Farming as a Business”. The exercise was a fun and enlightening way to help identify areas they could improve to make their farms truly well run and profitable. I want to share with you some of the areas that were identified in the example farm and encourage you to relate these concepts back to your own operation. What commonalities do you see in your farm either on the business or the hobby side?
Purpose. The first thing we discussed was the reason one farms. The farmers in our story were farming for the lifestyle. Do you farm because you love to provide food to your community, because you love the lifestyle, or because you want to make a living? Guess which approach is the one for a farm that is operated like a business? You guessed it – to make a living. Of course, you love the lifestyle and providing food to your community but are those your primary reasons? Do you want to do that for free? Do you want to support your farm financially or do you want the farm to provide long term employment for you, your family and employees?
Marketing & Production. Our “Dream Farm” grew 60 crops on ¼ acre, had chickens, goats, and a donkey! They had a CSA and went to 5 markets per week! Do you grow what you love and hope it sells? Or do you investigate the marketplace, find out what is in demand, and plan to grow accordingly? In general, hobby farmers tend to put production first and marketing second while professional, business farms put marketing first and production second. Do you use your time wisely to market the products you grow? Are the outlets you use profitable for the amount of time you spend marketing and selling?
Record keeping. The farmers in our “Dream Farm” spent the money they made at the farmers' market to buy from other vendors and go out for lunch on the way home. They also lowered the price of the produce at the end of the market to try and get it sold. Do you keep records? Do you know exactly how much money you make? Do you know what percent of your income can be allotted to each crop you grow? Do you know if each crop is profitable on its own? Do you know what is losing you money and what is making you money? Do you know how many hours you work and what your employees, family, and volunteers contribute to each crop? See one of our previous blogs on record keeping by clicking here Harvesting Data. If you want to really dive in and understand where you are making or losing money, we are holding a workshop on Farm Profitability on December 9. In the workshop, you will input your data into our crop, orchard, or livestock metrics tool to help you determine the answers to these questions. You need at least one season of income and expense records in order to attend this workshop. You can register for the class by following this link: Farm Profitability Workshop
Banking. Our hobby farmers put all the money the farm made into their own bank account. Do you have separate personal and business bank accounts? Why should you separate your business and personal accounts?
Salary. Our example hobby farmers worked a total of 120 hours per week and the farm made $20,000. They spent $15,000 on the farm and kept the remaining $5000 as their salary. Equating to $1.24 per hour! Do you pay yourself a salary or do you work for free – or for whatever is leftover at the end of the season? If you plan to be doing this into the future do you want to be paid? How much? How can you make that happen?
Profit. John and Jane kept all the money left over after expenses as a salary and therefore had no profit. If your farm had a profit after all expenses and salary were paid what would you use it for? Some professional farmers use it for saving for cash flow in lean periods, capital purchases, expansion or an additional bonus or vacation. How will you plan to have a profit in your farm business?
Regulations. Do you hope to fly under the radar or do you research and follow the regulations? What are the risks of not following the regulations?
Planning. Do you have an operations plan, a business plan, a cash flow plan? Planning what needs to happen and when will go a long way in making your farm run smoothly and profitably.
Running your own business can sound overwhelming. An important reminder came up repeatedly in the class “You do not have to do everything all at once”. Being aware of good practices is eye opening and allows you to head down the right path. Going forward with blinders on is bound to land you in a ditch! So make an action plan – get out a piece of paper or write on a big whiteboard. What changes do you want to make in the next 6 months? Choose your top 3-5 action items and give yourself a deadline for completing each one. Re-evaluate at least once per year and make a new action plan for the next set of tasks.
Also, encourage yourself by acknowledging your successes. It's good to evaluate where you are now compared to where you started. Feel good about the progress you have made! And think about how much progress you will make in the next few years! Every farmer, no matter how long they have been farming can find room for improvement.
“You'll never know everything about anything, especially something you love.” ~Julia Child
My farming dream now is a vision of harvesting on a sunny day, working reasonable hours, surrounded by a supportive community. In my dream farm, I breathe a deep sigh of contentment as I bask in the knowledge that I made enough money to pay myself a living wage, stay out of debt, give small bonuses to my employees, set aside a modest amount every month for my kids college funds and my retirement, and have enough farm profit to invest in the future of the farm. That is my dream of a successful farm business.
With careful record keeping and business planning may your successful Farm Business dreams come true!