Thanks to Chris Wayne of GrowNYC for this lesson’s guest post.
We’ve been helping train beginning farmers at GrowNYC for 18 years. In all that time, I can’t say that anyone has ever come to us with the expressed intent to make a fortune in sustainable agriculture. That’s not to say that money can’t be made, but something else drives most small-scale farmers to do what they do.
Holistic financial planning, like holistic whole farm planning, starts by identifying the values that draw people to agriculture. It then creates a realistic goal around them, and places that goal at the heart of all decision making. Looking to finance a new piece of equipment, hire additional staff, or add a wholesale enterprise to your farm? The question becomes, “Does this take me closer to my holistic goal, or further away?”
Seems easy, right? Well there’s lots of little questions nestled under that big one. The rubber of holistic financial planning meets the road when you use your values-based goal to select your enterprises. Does your predominately wholesale vegetables business allow for the type of community you were hoping to build around your farm? Does selling green beans allow you to pay your employees the wage you’d like? These are tough questions, and ones that need to be put to the test.
The first test is one of profitability. Will this enterprise earn enough money to cover its own variable costs? Enterprise budgeting is a straightforward way to project the enterprise-specific costs and income that would be generated by an enterprise. A rule of thumb is to take 30% off your income projections and add 30% to your costs. An enterprise can be as specific as an individual crop, or as broad as a group of fields used for CSA production. You define the parameters.
Using these enterprise budgets, start building in your overhead costs. These are the inescapable costs of running of a business, those that don’t change whether you’re growing one carrot or ten thousand. Utilities, rent, depreciation all fit under this category. With this information, you’ll start to get a full picture of the costs and income associated with your farm business. When you add in the component of time, or how cash flows in and out of your business over weeks, months, or years, you have a cash flow.
A cost that so many farmers leave out when building their financial plan is their own time. Being paid “what’s left over” is a common passive approach. The active alternative is to set an income goal for you and your family at the onset and build this directly into your financial plan. If you need to make 40K to cover your cost of living and make investments into your farm for the next year, make sure your plan reflects that need. If you don’t plan for the profit you need, the business will never bare it.
As you operate your business, it’s critical to check back on your plan and update what’s actually happened. This means you need to keep good records and set aside time to update your spreadsheets or ledgers. While it’s work to get a system up and running, the long-term payoff is undeniable–the ability to make data-based management decisions that keep a value-based goal as the reoccurring reference point. That’s a strategy for a long, happy career in agriculture.
Chris Wayne is the Director of FARMRoots, a program offering technical assistance for both beginning farmers and established farmers who sell through GrowNYC‘s Greenmarket Program.
As shown in this lesson’s video, use these templates for seasonal or long-term financial planning. If you do not have access to Microsoft Excel, these spreadsheets can be opened in Google Sheets instead.
AgPlan is powerful website developed to help rural businesses develop a business plan. Thanks to its creators at the University of Minnesota’s Center for Farm Financial Management and USDA grant funding, AgPlan is free of charge for anyone to use individually or in educational programs.
The AgPlan Financial Spreadsheet is a financial tool you can use to develop your own Balance Sheet, Income Statement and Cash Flows. It’s complicated if you’re not comfortable with spreadsheets; there’s a help site to support users.
Farm Answers is “the largest source of information for beginning farmers.” Scroll through their toolboxes to find compilations of resources that may be relevant to your business, or search through their library of thousands of resources. If you have a question when writing your business plan, chances are there’s useful information at Farm Answers.
This guided workbook, produced by California FarmLink, introduces you to the basics of farm business planning, helps you organize your thoughts, and provides some business planning tools. If you’re new to business planning, starting with a blank page can be daunting; this guidebook is a nice way to get started with some guidance.
SCORE is the nation’s largest network of volunteer, expert business mentors, with more than 10,000 volunteers in 300 chapters. SCORE has partnered with the USDA Farm Service Agency to provide business mentorship to beginning farmers. Learn more at the USDA New Farmers webpage dedicated to the program.
Courtesy of The Carrot Project, this sample business plan will help you understand what lenders mean when they say they want all the details about your business in one succinct document.
Create your own forecasted cash flow statement for one year of operations, or for multiple years. Watch the video in Section 3 for a walkthrough, and feel welcomed to ask questions in the comments section below.
This cash flow budget is the foundation of your financial plan, so it’s worth your while to get comfortable with it.