My prior post touched on the methods we’ve relied on at my farm to sustain an economically viable business and today, I’d like to share them in more detail. Starting on Wednesday afternoon, October 3rd and the following three Wednesdays in October, you can attend a four-week FarmLink Business Skills Camp with Poppy Davis and me that will provide you with a framework and the tools for applying sound business practices to sustain your farm business.
As I mentioned, the four basic elements we employ on my farm are setting financial goals, creating a budget, adopting a cash flow strategy, and engaging each year in an end-of-year evaluation to assess how well we’ve done and map out a plan for the next season. Each of these elements will be discussed in detail during the business skills workshops.
Setting Financial Goals and Creating a Budget:
Many of us who farm find it hard to state a clear financial goal for our business. However, what’s left at the end of the season is often not enough, and our effort to build a farm business from scratch as well as sustain a household can result in a lot of stress and strain. These strains can lead to farm failures, the end of partnerships and marriages.
Off-farm income can be a necessary part of sustaining a farm business. There’s no shame in that, and I relied on my own winter off-farm jobs and my wife’s non-farm income to support household expenses during the early years of our farm.
Being able to state what you need and want is basic to getting it. On a farm, if you want to net $40,000 you’re going to have to gross somewhere between $80,000 and $120,000, depending on how much labor you employ. Because of the cost of inputs and labor, this ratio is a nearly inescapable fact of farming, whatever your financial goals may be. Getting clear about your net financial needs is part of ensuring that those needs get met. Getting real about what your gross income needs to be is equally important.
The problem with not having a budget that reflects this reality, or setting net income goals that are too high for your farm or your market access, is that you may well spend money you don’t have and at the end of the year find yourself without enough money to get through the winter or pay for next year’s early season costs. Worse, you may find yourself incurring debt in an unbreakable cycle of trying to make ends meet.
If you have a budget (and actually look at it during the season!), you’re more likely to be able to make adjustments that will keep you on track to meet your goals. And, there’s great peace of mind to be had when your actual income and expenses in August match your projections and compare favorably to last year. If you did it last year and are on track to do it again, you can sleep better at night.
Adopting a Cash Flow Strategy:
Because of the seasonal nature of farm work and income, there are periods when income doesn’t match expenses. Without income that matches expenses, there is a very substantial risk that you won’t be able to spend the money you need to ensure future income, which is a downward spiral many small businesses suffer from. Knowing when you will not have enough money to meet your monthly production expenses lets you plan a strategy that will ensure all the seed and fertilizer you need gets purchased on time, your planting and weeding labor doesn’t get laid off in May, and you don’t unnecessarily incur high-interest debt, such as with credit cards, to meet expenses.
On my farm, we employ a strategy to meet Spring cash flow needs that is similar to CSA. We offer our customers a Friend of the Farm Card, which provides them with a balance against which they can purchase produce directly from us during the farm season. Even so, we fall short of what we need to get from January to the end of July without a cash flow crisis. Knowing our cash flow needs allows us to plan for this shortfall, and we got an annual operating loan from California FarmLink to ensure that we have enough cash on hand to meet costs.
While the past season is still fresh in our minds, my wife and I leave the farm in December for as many as five days and stay somewhere comfortable. To be sure, we take walks and go out for a nice dinner, but we spend at least three or four of those days focused on evaluating the past season and planning for the next. We prepare for the planning retreat for a week beforehand, create final income and expense spreadsheets for the past season, add up income by market and by main crops, and prepare a precise agenda for the retreat. Once we’ve evaluated the past season, we plan the next season’s budget, crop plan, volume of crops, new markets to sell to, and every other detail that will influence next season’s success, including our own happiness. The outcome of the retreat is a season plan we agree to adhere to.
Farming is not just business, it’s what you do for a living, as they say. And the quality of that living can be dramatically improved by planning for and managing a plan for economic viability. Join Poppy and me for the FarmLink Business Skills Camp and make your next season your best! [Photo by Liya Schwartzman]
About the author: Alan Haight is Vice President of the California FarmLink Board of Directors. Now retired, he started farming in 2001 at Riverhill Farm in Nevada City, California. Over the years, Riverhill’s diversified production of mixed fruits and vegetables has been highly regarded as a local provider of quality organic fruits and vegetables. Riverhill Farm is a community-based farm and is a meaningful part of the local food economy, with 85% of the farm’s produce sold within ten miles of the farm.