How to Open & Operate a Financially Successful Small Farm

Melissa Nelson and Julie Fryer

How to Open & Operate a Financially Successful Small Farm

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Library of Congress Cataloging-in-Publication Data

Nelson, Melissa G. (Melissa Gwyn), 1969-

How to open & operate a financially successful small farm : with companion CD-ROM / by: Melissa G. Nelson.

p. cm.

Includes bibliographical references and index.

ISBN-13: 978-1-60138-330-3 (alk. paper)

ISBN-10: 1-60138-330-4 (alk. paper)

1. Farm management. 2. Farms, Small. I. Title. II. Title: How to open and operate a financially successful small farm.

S561.N38 2013

630.68--dc22

2010031775

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Table of Contents

Acknowledgment

Dedication

Introduction

Chapter 1: Assess Yourself: Are You Ready for This?

Chapter 2: Resources Required: What Do You Actually Need?

Chapter 3: Type of Farm: How Do You Fit In?

Chapter 4: Starting Plant Production: Where Do You Begin?

Chapter 5: Beginning Animal Production

Chapter 6: Researching Your Markets and Selling Your Products

Chapter 7: Marketing: How Do I Get the Word Out Effectively?

Chapter 8: Setting Up Shop: Planning, Structuring, Licensing, and Insurance

Chapter 9: Business Management, Analysis, and Bookkeeping

Chapter 10: Government Assistance to Farmers

Chapter 11: Loans, Grants, and Investors

Chapter 12: The Business Plan

Chapter 13: Maintaining, Growing, or Selling Your Business

Conclusion

Appendix A: Sample Documents and Worksheets

Appendix B: Helpful Websites

Appendix C: Government Acronym Cheat Sheet

Bibliography

Author Biographies

More Great Titles from Atlantic Publishing

Acknowledgment

Writing a book is usually considered a lonely process, as the writer spends much time alone researching material and writing text. But no writer is an island, and during the creative process, many people contribute to make a book successful. First, I would like to thank those friends and family who supported and encouraged my decision to strike out in writing. I would particularly like to thank Karen Hipple-Perez, who always had a ready ear to listen to my ideas and to help sort through things; Jennifer Hipple, a fellow writer; my sister, Rosanna Callahan; and my brother, Terry Nelson.

I also would like to thank the participants in my case studies who really made the book with their real-life experiences. They were all very open and willing to share their experiences.

Melissa Nelson

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Dedication

To my parents, Henry and Suzanne Nelson, who instilled in me a healthy respect and love of all creatures great and small.

Melissa Nelson

Table of Contents

Introduction

Agriculture in the United States is a large and diversified industry. According to the U.S. Department of Agriculture, there are more than 2.2 million farms in the country today, the majority of which are smaller than 50 acres. Research shows they are more profitable than larger farms; a recent study by Food First, the Institute for Food and Development Policy, found smaller farms (less than 27 acres) are 200 to 1,000 percent more productive than larger farms and generate ten times more profit per acre than their larger counterparts.

Due to its diverse climates and weather, the United States is able to support a farming industry consisting of a wide variety of enterprises. The U.S. also boasts more arable land — land that can support vegetation — than any other country in the world. U.S. farmers bring in approximately $200 billion from both crops and livestock every year. Corn, grown by more than 18 percent of all U.S. farms, is by far the most popular crop. Other major sectors include soybeans, dairy, cattle, poultry, vegetables, and fruit. The U.S. is made up of ten distinct agriculture sections, so divided because of common characteristics relating to soil, climate, slope of land, and the average distance to market. While not an absolute, these regions are better suited to certain agricultural enterprises than others.

REGION	PRINCIPAL AGRICULTURE
Northeast	Dairy, poultry, fruits, vegetables
Appalachian	Dairy, tobacco, peanuts, beef
Southeast	Fruits, vegetables (both citrus and non-citrus), peanuts, beef, chicken, cotton
Lake States	Dairy, beef
Corn Belt	Corn, Beef, hogs, dairy, feed grains, soybeans, wheat
Delta States	Soybeans, cotton, rice, sugarcane, poultry, livestock
Northern Plains	Wheat, hay, beef
Southern Plains	Wheat, cotton
Mountain	Beef, lamb, wheat, hay, sugar beets, potatoes, fruits, vegetables
Pacific	Wheat, fruit, potatoes, vegetables, cotton, beef, sugarcane, dairy

Farming is an exciting and rewarding career choice. It offers many rewards, many of which are intangible. It truly is a lifestyle. If you are one of the many who have been toying with the idea of starting a small farm, you have come to the right place. Farming is not an easy career to start; there will be hard times. In order to be a successful farmer, two things are required — a love of the earth (as in working with its soil and caring for its animals) and good business practices.

Farming is one of the oldest and most important industries in the world, and it is a wonderful opportunity for what many would call a better life. You get to work for yourself, live in a rural area, and be close to nature. Farming is, first and foremost, a business. In order to be successful in the industry, you will have to manage it as such. This means choosing what you will grow or raise based on the demand for a product and how much money you can sell it for. It also means keeping an eye on the bottom line and paying attention to where your money goes. This book was created to guide you through things you must consider in starting your own farming business, provide information to help you plan what to grow or raise, and introduce a variety of methods you can employ to help your small farm become a success.

The following pages are filled with information, advice, ideas, plans, sample documents, and resources. This book is meant to be an idea starter and a blueprint for making those ideas a reality. The chapters are not in order of operation or importance — most of the time you will be juggling elements from every chapter at once. The book will touch on every aspect of farming from tilling land to raising chickens to creating a marketing plan to working with your government agencies. Read each chapter, explore all the options, and get your priorities in order before embarking on your business.

Remember that each of these endeavors is a full-fledged discipline of its own and could not possibly be covered fully within one book. However, you do not need to be an expert to incorporate these best practices into your business. After all, as a small business owner of any kind, you must learn to wear all the hats and run all departments. Luckily, numerous resources are available to you to further your education. Once you have narrowed down your idea and as you work through the business process, visit your local library or bookstore for more information on any of these topics. Check online sites dedicated to that field and join trade groups in your area to learn more. The most important thing to remember as you read this book and formulate your own success story is that if you truly want to succeed, you will discover a path to reach your goal.

Happy farming!

Table of Contents

Chapter 1

Assess Yourself: Are You Ready for This?

Owning and operating your own farm business is an exciting prospect. As with any business, it is important to do your homework. Aside from all the decisions you must make, you also need to ask yourself if you are truly ready for such an undertaking. It is one thing to want to work the earth; it is quite another to turn this desire into a career.

Farmers as Entrepreneurs

• Farmers are the original entrepreneurs. Defined as someone who generates profit by capitalizing on opportunities, entrepreneurs have several common traits. While there is no concrete recipe for success, many of these successful business people have certain common qualities. How do your entrepreneurial skills measure up? Review the following list to discover the attributes you share with successful entrepreneurs. Confidence. Farming is an up and down sort of business; some years are great, and other years have you borrowing from piggy banks. You really have to believe in yourself, your farm, and the business of both in order to weather those times. Confidence is also important to a dynamic business such as farming because you frequently have to make decisions and stick by them, such as what to plant that year.
• Persistence. Farming is not a business where you can expect to show a profit in the first year. In fact, many people estimate that a new farmer really cannot expect to turn a profit any sooner than five years down the line. You need to have the persistence to get through the lean times. While confidence is a large part of that, when time and circumstances erode the bravado of confidence, persistence is what sees you to the finish line.
• Focus. As your own boss, you are responsible for achieving your own success. You continually have to keep your focus on the attainment of your goals. This means working when you do not feel like it, knowing what to spend money on, and realizing what you can do without. In order to be successful in farming, you have to keep your eye on the prize.
• Ability to innovate. Farming is a dynamic business; not only does the weather create a changing and unpredictable environment, but the consumer market is also distinctly faddish. Consider that when low-carbohydrate diets were in vogue, per capita potato consumption dropped more than 10 percent in less than one year, from 145 to 130 pounds per year, and 40 percent of Americans stopped eating bread. If you were a potato farmer at that time, you would have had to use innovative methods to overcome the deficit.
• Ability to take risks. Farming is a risky business by nature. A variety of factors — such as weather, insects, disease, and consumer trends — are outside your control but affect your chances of success nonetheless. To be successful, you must be willing and able to accept a certain amount of risk.
• Leadership abilities. Farming requires leadership abilities because with a farm, particularly a small one, you stand alone. It is your responsibility to assemble your resources, be it a spouse’s accounting ability, the help of a neighbor when you need it, a good deal with your suppliers, or the support of your community.
• Organization skills. Farming requires a series of essential chores and tasks that must be completed within the day. To succeed, you must to be able to identify and prioritize these tasks and be organized enough to complete them on time. You also will have to deal with the “mini-crises” that spring up while still getting daily chores done.
• Long-term view. The daily demands of farming often mean that long-term planning gets lost in the shuffle. To succeed as a small farmer you must set aside time to plan the future of your farm and put in the additional effort required to make those plans happen.

OK, how are you doing so far?

Farmers as Business Managers

In addition to the entrepreneurial skills, you also need to have managerial skills. The entrepreneur is a creator; he or she sees the opportunity, assembles the resources, and sets a course of action. In contrast, a manager continues the plan; his or her concern is the day-to-day aspects of the business once it is up and running. Managers in all business sectors are skilled in these important areas:

• Knowing the industry. A successful business manager has to monitor trends in the economy, technology advancements pertaining to equipment and communications or marketing; government and legal regulations, and competitors and consumer trends that may develop into challenges or opportunities in the future. The farmer is no different. You have to make it your priority to stay current with industry changes.

• Understanding the basics of business management. Too many farms fail because of improper business practices. You need to understand all aspects of your business, including bookkeeping, legal issues to watch out for, marketing planning, and planning for getting your product to market. While your purchase of this book is a great first step, consider taking a class or getting a mentor to refine your skills in these areas.
• Adequate startup capital. Many businesses fail because they try to start with too little capital to fund everything needed to create a business. You certainly can start on a shoestring; the trick is working with that shoestring budget to meet all the particulars of starting your business.
• Managing finances. Farmers have to be able to manage cash flow effectively to ensure the availability of funds for expenses, supplies, catastrophes, improvements, and growth. As a farmer, your cash flow is likely to be highly volatile. Your ability to manage your finances well in all situations can make or break your farm.
• Managing time and resources efficiently. Just as the entrepreneur needs to manage his time, priorities, emergencies, and the involvement of those around him, so too does the business manager. In order to run your farm effectively and profitably in the long term, you first have to manage your time and resources effectively and profitably.
• Attention to quality. As a small farmer, you likely will be competing on quality, not price. You will need to make certain that all of your product offerings, from tomatoes to spring calves, are of the highest quality that you can provide. You also will need to ensure that your interactions with customers, wholesalers, and suppliers are of the highest quality.
• Knowing how to compete. The minute you attempt to sell something, you have entered the wonderful world of competition; as a farmer, you need to know how to compete. You need to understand how a competitor affects your business, that alternate products exist and act as competition as well, how to market your products effectively, and how to select the best venues for sales.
• Coping with regulations and paperwork. While all businesses require some level of paperwork and regulations, farmers have additional considerations because lives are concerned — the lives of your animals as well as the lives of your consumers. You will need to deal occasionally with large amounts of regulations, paperwork, and mandatory record keeping and inspections.

As you can see, to ensure a smoothly operating and profitable farm, the small farmer needs to wear many hats. Even with the best planning and management, many things can go wrong. Considering these factors up front will help you decide if small farming is really for you.

Case Study: Know Thy Farm — A Different Business Model

Jan Hoadley

http://slowmoneyfarm.com

Jan Hoadley is the visionary behind Slow Money Farm, a community-sponsored agriculture (CSA) enterprise. Farming is in her blood. She grew up on a family farm that raised purebred Charolais cattle. She also had experience with horses, Brown Swiss cattle, and pigs. Tiring of the urban life, Hoadley decided to venture into agriculture through the development of Slow Money Farm.

Slow Money Farm operates a bit different from other CSA farms. While they will do offer their customers subscriptions for products, they plan to emphasize the use of rare animal breeds and heirloom vegetables to help preserve these endangered species from extinction. However, since Slow Money is a business, each animal will have to pay for itself by producing meat, fiber, or milk in large enough quantities to be financially sustainable.

Currently, Slow Money Farms raises several animal breeds that are on the American Livestock Breeds Conservancy endangered list. These include American Chinchilla and Giant Chinchilla rabbits along with Dominique, Silver Laced Wyandotte, Plymouth Rock, and Black Australorp chickens. Most of these breeds have become endangered as they have characteristics that make them unsuited for modern confinement systems. As they expand, they plan to include other animal species such as ducks, geese, turkeys, goats, cattle, donkeys, and horses.

Heirloom vegetables also “pay” for themselves as seeds from these varieties are saved to be planted next year. This is unlike hybrid breed vegetables in which the seeds from the hybrid vegetable generally are not good for planting.

Slow Money Farm plans to custom raise animals and vegetables for a small number of people who will pay a fee to help secure land and the needed supplies to produce the final product. Products will be delivered off site at a prearranged location. Milk is not marketed from the farm due to state regulations but it is “marketed” by using it as food for pigs, chickens, or bottle calves. Giant Chinchilla and American Chinchilla rabbits are also raised for show and for breed preservation. Those rabbits that do not make the cut for show or breeders are used for meat-market animals.

By keeping the number of customers small (fewer than 20), Slow Money Farm will keep foot traffic to the farm low, an important aspect of biosecurity. Fewer farm visitors means less chance of disease transmission. One method Slow Money Farm plans to use to keep their clients involved in the farm is through the use of webcams and video “vlogs” from the farm to let the clients visually see how the animals are raised and to keep updated on the farm.

Slow Money Farm will connect with customers and others through extensive use of social media sites such as Facebook® and Twitter®. Due to the wide variety of products raised on the farm, recipes will also be shared via these sites to help customers get the most from each product. Social media sites are also useful tools for breed promotion, photos, general farm information, and interesting videos.

Slow Money Farm is an exciting concept merging the new (social media) and the old (long-established breeds) into a self-sustaining farm and providing customers with a healthy alternative to supermarket foods.

The Downside

In the excitement of starting a new venture, many would-be business owners make a common mistake when thinking about opening their own business: they forget to consider the potential downside to this new business. Success is about preparation. As you go forward in the pursuit of opening your own small farm, it is important to consider carefully the various issues or problems associated with the type of farm you are planning to run. Neglecting to consider the possible negatives may mean finding yourself unprepared and ill-equipped to handle these issues effectively when they occur.

The following is a list of some of the issues you should consider before opening your own small farm:

• Uncertainty of income. Starting a farm requires investment, and the fruits of your labor may not bear for a couple of years. You need to be prepared to live on savings or another source of income until your harvests come in or your farm shows a profit. It will be necessary to tighten the belt for the first few years. Are you ready for that? Is your family ready for that?
• Risk of losing everything. There are no guarantees in business; you could lose everything. While careful planning and good research can greatly lower the chances of that happening, your farm still could fail. It is important that you spend some time evaluating this likelihood and develop a course of action to implement in case this does happen.
• Hard, seasonal work. As rewarding as it is, farming comes with long hours and seven-day workweeks for most of the growing season. The tasks involved and the hours required vary a great deal depending on the season. Expect to have little time for anything other than your farm during certain times, particularly when you first start out.
• High stress levels. Having your own farm is rewarding, but it also can be stressful. Aside from the normal stresses of business — such as competitors, the economy, and consumer trends — you also have the additional stress of worrying about the weather, the uncertainties of livestock health, and even the volatility of the market Take snow, for example; before becoming a farmer, snow was a beautiful act of nature that entitled you and the kids to a snow day. To a farmer, snow means that the taste and texture of your vegetables will change, and your animals might need extra heat.

A high-risk profession

Farming is considered one of the most dangerous jobs in the United States. Hundreds of farmers and ranchers are killed each year, and thousands suffer debilitating injuries that will end their farm careers. For youth farm workers, the risk goes even higher, and it is considered the No. 1 most dangerous job for teens. This is often because kids start working on the family farm at a young age and often are untrained, unsupervised, and impulsive. Beyond the typical bumps, bruises, or breaks, many farm injuries are quite serious such as severed limbs, concussions, or suffocations. Long-term exposure to sun, heat, or loud noises can lead to skin cancer, dehydration, or hearing loss. Even an innocent fun ride on the tractor for your grandchild can turn deadly if the tractor tips or rolls over.

The potential risks on any farm run the gamut from large, heavy equipment to powerful, unpredictable animals to noxious, toxic chemicals. Add to that beginner’s inexperience, isolated work conditions, exhausting work schedules, and sudden bad weather, and you can see why farming makes this notorious list. These risks are not to be taken lightly, and it is critical to learn, practice, and teach safe farm practices to all workers, family members, and visitors to your farm. The USDA website has various links related to farm safety tips, youth farm safety classes, and resources to find more information. Check with your local extension office or 4-H club for printed materials or videos to help in your training.

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