Tips for Farmers Sharpening Their Pencils
Demystifing Farm Enterprise Budgets: See article after CSA Profitability.
Profitability of CSAs: see below.
Mid Season Tune Up: Very last article, scoll down......
Webinar 1.3.2013 on Planning for Profit
Also check out a great publication called Growing for Market, here is a link:
I love CSAs. What could be better? A direct link from farmer to consumer, commitment from the consumer for a whole season, up-front operating capital, a captive social network, community building, let alone the farmer’s ability to tailor the CSA share to best meet the farm’s needs.
While there many different types of CSAs, a common model looks like this: a flyer or brochure promotes a farm’s CSA, and outlines a mechanism for enrolling in, and paying for, a share in the CSA program. A tri-fold brochure may have a tear off sign up section with price options to send in to the farm with payment. In exchange for a certain amount of money, the consumer receives a number of weeks of CSA share distribution.
As an example, a farm’s CSA full share may cost $500 for 20 weeks of seasonal produce, distributed from mid June until late October. That works out to an average of $25/week sales income for the farm.
Some CSAs are small and some are large or very large. In the above scenario, a farm may have a 100 member CSA with $50,000 CSA sales income. Or maybe 200 members with $100,000 sales income. Many CSAs have even more, with sales in the $200,000 - $300,000 range. That’s a chunk of change. CSA income can represent a significant portion of the farm’s total sales income, but is it profitable?
Why do I have to bring up the subject of profitability if CSA sales are good, members are happy, and the farm is in the black? I used to think that the CSA model didn’t necessitate crop enterprise analysis that I feel is so important with non CSA farms.
Crop enterprise analysis is a fancy term for cost/benefit. Of the different things you produce on your farm, each has its own costs of production, sales revenue, and resultant profit (or loss). Whether raising 6 feeder pigs, ¼ acre of carrots, or making apple cider, each has its own income and expenses that contribute to the overall farm’s net profit. If you grow 30 different types of vegetables, each has its own level of profitability, with some more than others. These all get averaged into your farm’s yearend net profit. I can almost guarantee you that each crop’s profitability won’t be equal. That said, focusing on more profitable farm products can only help increase your farm’s overall bottom line, a very desirable result.
If you are unfamiliar with crop enterprise budgets, they can be simple to overly complex. Tracking the labor input is usually the toughest nut to crack, because it is best done in season when things on the farm are at a fever pitch. Other costs, and sales income, are often documented with a paper trail, making them easy to input. All crop budgets list sales income, various expenses, and net profit. To see some easily digestible examples online, check out Penn State University and University of KY enterprise budgets:
Extension.psu/business/ag-alternatives/farm-management/ Click on Budgeting. Table 1 is for crop budgets, Table 2 is for Livestock.
www.uky.edu/Ag/NewCrops/vegbudgets13.html Click on Vegetable and Melon Budgets to download.
And then, I can always recommend a good book on the subject……
Since CSA farms are often sold more as a package of ‘pay one fee upfront, and get a season’s worth of produce’, my old thinking was enterprise analysis seems unnecessary added work. But I’ve changed my tune. Here’s why.
Imagine a CSA continuum of profit, where the left hand endpoint is the most profitable CSA possible, and on the right hand side, the least profitable CSA. To illustrate my point, let’s say I have 2 different CSAs: a very profitable ‘All Kale’ CSA, and a much less profitable ‘All Corn’ CSA.
For my All Kale CSA, I distribute 10 bunches of kale (valued at $2.50/bunch) every week for 20 weeks. (If I lived in a kale loving, densely populated area, or had kale friendly restaurants, I might be able to sell enough shares to make it work). With my All Corn CSA, members receive 5 dozen ears of sweet corn (valued at $5/dozen) each week for 20 weeks. (I may find enough farm stands and restaurants who want that much sweet corn).
Sweet corn is my favorite dog to kick profitability-wise, only because it is such a high demand item that is often undervalued. Kale is one of my profitability examples, because it usually is.
Somewhere between these two end points of profitability lies the diversified vegetable CSA. Depending on the crop selection a farm chooses for their CSA, the place on the continuum will be either closer to the All Kale or All Corn CSA (or possibly smack dab in the middle).
Most profitable Least profitable
Diversified vegetable CSA Richard’s All
The more crops you select for your CSA that are more profitable moves your CSA to the left. The more unprofitable a crop mix, your CSA moves to the right.
As you move your CSA to the left, you can pay yourself more, pay your employees living wages, make needed repairs, invest in equipment that make you even more efficient and profitable, save money for kids’ college educations, your retirement, and family vacations.
CSAs closer to the right hand side scarcely reward the farmer, perennially depend on cheap labor or apprentices, forego needed repairs, have less for capital purchases, college tuitions, retirement savings or vacations. A recipe for burnout, and possible end to the farm business.
So how to select the right crops so you can be as profitable as possible? Begin by thinking about the overall goals for your farm. Next, take a new and closer look at your current crop selection, with an eye towards increased profitability. Can certain crops be eliminated, or bought in? Multi-farm CSAs allow specialization in fewer crops, often at greater efficiency and profitability. Profitable sweet corn growers exist, often because they are focused on that crop.
I don’t want to decrease diversity necessarily, just question it. CSA members will still have to go elsewhere to get their coffee, chocolate, avocados and bananas. Your CSA newsletter is a great vehicle for explaining why you don’t grow certain vegetables, or crops at different times in the season (like spinach in spring and fall only, with salad greens as a replacement green in midsummer).
One ultimate role as farmer is to make sure your farm survives. No one else will do that, unless you hire someone to do it. You can be the best grower, marketer, innovator, and mechanic, but unless your farm survives financially, all that goes out the window because your farm will be out of business.
My goal is to see more prosperous, content farmers that are less stressed out and prone to burnout. The CSA sales avenue holds that potential. But don’t let significant gross sales income lull you into complacency and avoid the ultimate economic sustainability that all farms need. Pay attention to your farm’s economic health, it will be a win-win situation.
Demystifying Farm Enterprise Budgets
Truth be told, I don’t like recordkeeping any more than the next farmer. You may think that is strange coming from someone who is known for advocating recordkeeping repeatedly in workshops and in a book on farm business management. No, I didn’t get struck by lightning or have a brain transplant. I just want to put recordkeeping in its proper place and to stress the importance of the end result of any data collection: making a good living from the work I do on my farm.
I want to share a few thoughts that address some questions that crop up often when crafting a crop budget. In my workshops and book, I stress the need to record some pieces of information that will be used to create enterprise budgets. These enterprise budgets (carrots, blueberries, feeder pigs, dairy goats, laying hens, for example) are compared for relative profitability, and are at the heart of shining light on the farm’s undiscovered profit centers (and losers). These enterprise budgets are used for increasing your profitability; they will affect your farm’s other financial statements like the Balance Sheet, Profit and Loss, or Cash Flow Projection, but are separate tool.
A good enterprise budget requires taking some data during the farm work day or work week, oftentimes of labor tasks done for a particular farming venture. How many person hours did it take to weed 500 bedfeet of carrots? How long does it take to pick 50 lbs of blueberries? How many bushes did it take per picking? The answers to these questions give a very accurate accounting of the expense side of the Profit = Income - Expenses equation for the different things you do on the farm. Labor expenses for harvesting & weeding, and yields & sales price often have the biggest impact on enterprise budgets; pay attention to these.
In the excitement of wanting to uncover their farm’s own profit centers, sometimes workshop attendees or readers of my book will, in all good intentions, record everything people do all day on the farm. While this may be useful, it can backfire. Too much information can be overwhelming, and actually may make it harder to make a cogent enterprise budget. Heads spin, crucial data is missing amidst pages of notes, arms go up in frustration, and the once exciting profit discovery process comes to a halt.
This is not the desired outcome. So…… instead of recording everything everyone does all day, START SMALL.
Begin by recording information about your top 1-5 sellers. These crop and animal ventures, or enterprises, are the most important to analyze because they are bringing the most money into your farm checkbook. If you only grow a few bedfeet of radishes each spring for a minimal amount of sales dollars, then don’t worry about them for now. Tackle the big sellers and make sure you are profitable (or can be made profitable) with them first.
Only record information for these top 1-5 sellers. Let’s say beets are a top seller. After I prep land and seed beets, I may not record anything related to these beets for 3 weeks (when I cultivate them). And then another 1 or 2 weeks goes by before cultivating the beets again or hand weeding them. All my data for that crop of beets fits on one page of paper. To simplify the process, designate one person to gather and record the specific top selling crop or animal info (if it is not yourself).
Another big help and time saver is to record data efficiently by paying attention to rates: bedfeet weeded per hour, bushels harvested per hour (or bedfeet, or both). Two or three variables should always be written down. Once established, check rates for accuracy a few times a season. This way you don’t need to record often-repeated tasks, such as lettuce picking times on numerous succession plantings. Just check that the rate is on target. These rates can be used very effectively when creating enterprise budgets.
PRACTICE WITH A PROJECTED BUDGET
Enterprise budgets can be made in hindsight, using real numbers from the previous season, or they can be made using your best estimates for a future enterprise. Try making a projected budget for one of your farming ventures just to get a feel for the process. It will clearly show you what numbers are missing, and need verification in the future. You’ll be able to narrow your focus and jot down fewer, and more meaningful, notes. Practice this projected budget now, it will be very informative. I recently did one in a workshop in just 11 minutes. Set aside half an hour and I bet you’ll be pleased with the results. Try limiting yourself to the back of an envelope- that’s how simple it can be.
MAKING YOUR FIRST BUDGET
The first one is always the hardest, but nonetheless very doable. You’ll need to start with two things.
First, determine the size of the enterprise (e.g. 1/4 acre of carrots, 100 meat birds, 2 feeder pigs, 21’ x 96’ hoop house of spinach). Use the size that is most commonly undertaken. If you normally make 20 gallons of apple cider per batch, use that amount.
Second, determine an hourly rate for labor. Even though you may do all the work yourself, you still need to know how many hours were spent on the project and what that labor cost will be. We all share the fact that there are only 24 hours in a day, and some of that time is needed for sleeping, eating and personal time. The time you devote to work is a limited resource and your work hours should be spent in a useful way. Besides, if you break a leg or are called away to a family wedding or funeral, you’ll have to replace your labor, often by paying someone. The labor rate you determine (usually what hired hands are paid) gives the time spent on a crop or animal enterprise a quantifiable number for the expense side of the profitability equation.
(Note: if you make a profit on the enterprise, and perform all the labor yourself, you will keep not only the net profit amount, but also the amount of labor expensed in the budget).
After determining the size of the enterprise and the labor rate ($/hour), start budgets by writing down the tasks of the enterprise in chronological order from beginning to end. With the beet example: prep soil (spread compost/fertilizer, disk in, chisel beds, bed form beds), seed beets, cultivate with tine weeder, cultivate with baskets, hand weed, irrigate if necessary, cultivate, harvest, pack out, post harvest field care (disk, seed cover crop).
You can then fill in the costs associated with each task (or do it as you write them down).
Use your recorded notes (and/or rates) and actual expenses from receipts (seed cost, bag cost) to calculate a cost for each task.
To keep it simple at first, you may want to postpone tackling marketing, delivering, and overhead costs. You will have a rough idea of profitability, and you can compare enterprises side-by-side pretty effectively.
Don’t get hung up on one item for too long. Forge ahead and revisit it later after more pieces are in place. Use your best estimates. For tractor or greenhouse expenses, refer to my book and its appendices as a shortcut. Or spend a little more time figuring true costs for your farm.
PUTTING IT TOGETHER
After you total your production expenses, calculate your sales revenue for the enterprise, breaking sales into differing price structures if necessary (more beets sold wholesale at a lower price per pound than at retail).
Subtract expenses from sales and presto! You have a net profit for the given size of your enterprise (without marketing, delivery and overhead expenses).
CONGRATULATIONS! NOW PONDER THE BUDGET
When looking at an enterprise budget, whether it is profitable or not, look at the big expense numbers first. These numbers have a great effect on the net profit. These big expense numbers (and all other expense numbers) may be able to be reduced (usually through efficiencies, sometimes by scale). Labor is often a big expense number, and budgets without labor expenses may even look profitable. But if you are willing to work for nothing, come work at my farm. Focus on using labor as efficiently as possible. For now, don’t sweat trying to bring down the smaller expense numbers, they will have the littlest effect on your net profit.
The other major player in your net profit is the yield, and sales price of that yield. Sometimes a slight yield and/or sales price increase can dramatically improve net profit.
Now that you have created one enterprise budget, others will fall into place quickly.
The above enterprise budget covers production expenses and sales, and can be very useful in comparing the things you produce on your farm for relative profitability. I can almost guarantee that your enterprises won’t be the same profitability; some things will make more than others, sometimes way more. But certain real expenses are not covered in these budgets. They don’t address marketing, delivery, and overhead costs. These are real expenses, and the money to pay for these has to come from somewhere. If each farm product doesn’t help pay for these expenses, off farm money will need to pay for them.
For simplicity, I’ll lump all overhead expenses (farm share of insurance, phone, electricity, website, land taxes, computer, landfill, office, conferences, advertising…) and marketing and delivery together. If that total is $10,000 per year, then each farm enterprise needs to contribute some its net profit to the $10,000. How you allocate the overhead expenses is up to you; it could be by acre, by breed, by sales % of total sales. Just be fair, and cover the whole $10,000.
I hope these tips help you to overcome the natural inertia surrounding the analysis of farm finances. It doesn’t take that long, just set aside some time and do the math. It pays.
Mid Season Tune Up
Feeling a little overwhelmed? Is the needle on the stress-o-meter topped out? Need one more thing to do in August?
It’s been a busy season up until now, and yet there is still the second half of the season to finish up before work slows down. Mid season blues are common this time of year- here are some thoughts on the subject.
It may be hard to think of January right now, but that’s where the farmer’s story usually starts. Having rested from the previous growing season, seed catalogs appear in the mail and thoughts of Spring instill hope that this year will be a banner year. Excitement centers on new varieties to trial, and new ideas, systems or tools to test out. Optimism prevails on every front. Lots of new things to experiment with. Spring is a fresh beginning.
Seeds are ordered, greenhouses fired up, plants started. Fields dry out and crops are planted in the ground. Warm weather and the long days of Spring coincide perfectly to get the myriad of farm tasks accomplished. With some good weather, the farm is off and running.
But around July and August here in Vermont, the reality of earlier optimistic planning finds most farmers without enough time, juggling a few too many balls at once. The chaos level rises, and a ball or two get dropped. The farm moves at full bore- planted acreage is at the max. To boot, multiple plantings of succession crops (like greens) require preparing beds, planting, cultivation, harvesting and tilling in of crops all within a week’s time frame. And these different succession crops stand next to long-season crops that have another one to three months in the ground. Besides being fully planted with crops, fields may be overridden with of a bonus crop of weeds. Knowing that the end of the season is closer than it once was, desire for weed free fields wanes. Focus changes to getting crops out of the ground and sold- and putting money in the bank. Weedy fields contribute to the overall chaos that mid summer can bring. Projects that were planned for this year fall hopelessly to the bottom of the To-Do list. Farm stress can be at an all time high.
In the fall, fields begin empty out, cover crops sown, and the hectic-ness of farm management lessens. There is still no shortage of farm work to do, for crops need to be harvested, packed and marketed. But the end of the season is in sight. Once everything is harvested and fields are put to bed for the winter, farmers can finally EXHALE, as their slower winter season begins.
For those of you readers that are familiar with my writings, you know that I keep a farm crop journal. This journal details inputs and yields on crops I grow so I can figure out how profitable they are. But another aspect of the crop journal is to record events and the pulse of farm life during the course of the year, much like the familiar daily diary. I may write,” Four frosts in late May” or for last year, “ Rained for 8 weeks solid.” I review these notes in January before I plan for the next season, to refresh my memory which tends be habitually short. By January, it seems my mind has been reformatted by winter’s amnesiatic effect and I forget how hectic the preceding season was (just a few months earlier!) or what things went drastically wrong. It took me a couple of decades to realize this pattern, hence the diary entries in the crop journal as a reminder. One year, I thumbed through the previous season’s crop journal, and there was a page that had big letters in magic marker scrawled across it saying,” OMG! Never do THIS again!” I paused, and wondered where it came from. It kind of looks like my handwriting…..
Obviously, I need help remembering, and I need help to change habits so I don’t find myself in the exact same frustrated and chaotic situation during the next growing season. Because plans that are made in January manifest themselves mid season, now is the time to think about plans for next season. It seems counterintuitive at first, but now is when you clearly see the need for changes. You are surrounded by your work. Although the slower pace of winter makes it a good time to plan, it is easy to forget the feeling of mid season.
Ask yourself, is everything the way you want it to be on your farm? Do you want to be in this situation next year at this time? If so, great. You can duplicate your current strategy for next year. But if you see the need for changes, then now is the perfect time to take 10 minutes and write them down. It need not be detailed or lengthy, just a rough sketch of what would be different next year. Put it in a place with other papers to review next winter, like your seed order file, or tax documents. It may be as simple as: “reduce escarole by half, no summer spinach (but maybe more in fall), step up mechanical weed control, need to reduce overall workload in May (fall fertilize? buy in transplants?), weeds and deer out of control, need more help in June.”
Another way to plan for future changes is by listing all the crops you now grow and commenting next to each crop, such as “more” “less” “OK” or naming varieties that work better than others. Keep it short and simple.
Change is hard. The path of least resistance is doing what is familiar and what you have done for years. But if you recognize that something is amiss now, and you want to make positive changes, action needs to be taken to make those changes real. What will change? Who will make the changes? When will the changes take place? Besides being hard, change can be scary- but remember, you can always change back the following year to the way things are now. That’s not a lot of downside for the prospect of some real positive steps forward.
Besides quickly pencilling out some plans for next year, another useful task to do right now is take a field inventory. Since most crops for the season are in the ground (or have been harvested) you can roughly project what your yearend sales will be. Grab the page of crop yields from the front of a Johnny’s Seeds catalog and walk your fields with a pad of paper and a pen. Estimate the row feet of each crop and figure what the yield may be. Next, figure what the anticipated price you’ll receive for the crop, and write down the result. You'll end up with a total field inventory that you hope to sell, but also get a feel for which crops are worth more per row foot than other crops. Taking field inventory isn’t too time consuming, maybe an hour or so, but it will help you decide where to put your efforts if your time is spread thin.
And for just a little more time invested, you can project what expenses you will have until the end of the year, resulting in a projected net profit for the year. Payroll will probably the biggest expense: estimate how many workers and workweeks are needed to finish out the season. Look at last year’s books as a gauge for other projected expenses. You can get a pretty good idea where you’re your net profit will be at the end of the year.
My last piece of advice is to take a break. Go on a mini vacation, even a day. And give your employees some time off as well. Getting out of Dodge for a little R&R is refreshing for all, and gives needed distance from the farm. Working too hard for too long creates tunnel vision, and lack of perspective. You’ll return to work fresh and see things differently. Life is short, take time to enjoy it.
What Others Say
"Richard Wiswall has helped my business become more sustainable. Both his workshops and his book have enabled me to hone my skills in financial analysis, record keeping and all-around professionalism. His firm belief that farms can and should be financially successful provides motivation and encouragement for all of us who make our living on the land."
Wellspring Farm, Marshfield, VT
"It has been such a pleasure working with Richard over the years. Not only is he knowledgeable about the business of farming, he tempers the hard facts with humour and enthusiasm. Non-judgmental and generous with his time, we would highly recommend him to anyone wishing to start or fine-tune their farming venture."
Joy and John Primmer
Wildstone Farm, VT
"Richard is an excellent speaker and knows the ins and outs of farm finances. The examples we worked through as a group were great!”
CSA farmer, WI
Richard Wiswall has long had a practical, effective, and user-friendly approach to business management for diversified farms. He’s shared this approach by consulting with individual farmers and through his excellent book aimed at organic vegetable growers. As the Extension vegetable and berry specialist for Vermont I have seen first-hand how his advice has aided the success of farms, from start-ups to those with lots of experience. In person and on paper, Wiz has a lively style that engages farmers in thinking clearly about a topic that is at the core of farm viability.
-Vern Grubinger, VT