In my last post, I talked a lot about small farm economics, and it has turned out to be my most commented post to date. In a comment, Bruce King suggested I show a plan for making my goal of 30-40k per year in net farm profit. I'll try to get to that in a future post, but before that, I thought I'd finally post and talk about my business plan from last year and the revised one for this year. It's actually a bit embarrassing to me because I was off by such a large magnitude on the first iteration of the plan, but it is probably illuminating as well. Without further ado, the plan for 2012, which I came up with in the summer of 2011.
This is the first time I'm using the "embed document" feature on the blog, so hopefully it's working okay to view the spreadsheet. The spreadsheet has both the 2012 and 2013 cash flows (there is no heading that separates that two years, but you can probably figure it out). I estimated that I would make $1100 the first year and $22000 the second year. As a reminder, I was about $4000 in the red in terms of cash flow for the first year, but that didn't include the approximately. What I didn't include was the $4000 I spent in 2011, which was included in this business plan. In other words, I expected to make $1000 after starting from 0 for the period of September 2011 to December 31 2012, but in reality I had -$8000. Where did I go wrong?
Lots of places. I made:
1. STUPID MISTAKES: I didn't budget for fuel costs at all. I didn't budget for a manure spreader that cost me $900. I didn't budget for the costs of turkey processing.
2. POOR ESTIMATE OF COST MISTAKES: I thought it would cost me $700 over that period in rent, when it ended up costing me $3000. I underestimated the cost of seed by a larger margin.
3. MISTAKES OF YIELD AND CONSUMPTION: I thought I would get 40 pounds of honey per hive in the first year. Ha. I got about 6 pounds from the one hive that survived. I thought my pigs would have a hanging weight of 200 lbs at 6 months and only eat $150 of feed. They came in a 170 and cost me about $250 in feed. The final weight of the turkeys was about 3 pounds less than my estimate on average.
4. FAILURE TO ADEQUATELY PREDICT SCALE OF LOSSES: I expected some losses (for instance, I thought I would lose 15 of 65 turkeys), but I was way off on the amount of loss I experienced. Some of that was due to inexperience, but some was just due to the nature of dealing with living things that can and will get sick/die. For instance, I ended up buying 80 turkey poults and lost almost 30, 10 at a fairly late stage to coyotes. I lost 4 of the 5 packaged bee colonies I bought, and the one that made it to the fall was dead this spring.
5. FAILURE TO MEET ESTIMATED DEMAND: While I was able to sell all pigs, I only sold half of the Thanksgiving Baskets.
On the flip side, some costs and income were not budgeted for and offset the scale of the potential loss. For instance, my disc harrow cost me significantly less than predicted. I made some income on hay sales that I hadn't considered. I sold weaner pigs in late summer of last year that brought in some much needed moneys. I spent about $60 on the website after I decided to design it myself.
Overall, my main issues were a lack of experience in running a business, inexperience with with animals I was producing, and a tendency toward over-optimism. Luckily I had another job and a savings to cover the shortfall.
The second year plan is laughable in hindsight, but it was basically an extension of the unrealistic expectations from the first year.
So given what I learned from that experience, here's the plan I developed in the spring of this year:
Lots of places. I made:
1. STUPID MISTAKES: I didn't budget for fuel costs at all. I didn't budget for a manure spreader that cost me $900. I didn't budget for the costs of turkey processing.
2. POOR ESTIMATE OF COST MISTAKES: I thought it would cost me $700 over that period in rent, when it ended up costing me $3000. I underestimated the cost of seed by a larger margin.
3. MISTAKES OF YIELD AND CONSUMPTION: I thought I would get 40 pounds of honey per hive in the first year. Ha. I got about 6 pounds from the one hive that survived. I thought my pigs would have a hanging weight of 200 lbs at 6 months and only eat $150 of feed. They came in a 170 and cost me about $250 in feed. The final weight of the turkeys was about 3 pounds less than my estimate on average.
4. FAILURE TO ADEQUATELY PREDICT SCALE OF LOSSES: I expected some losses (for instance, I thought I would lose 15 of 65 turkeys), but I was way off on the amount of loss I experienced. Some of that was due to inexperience, but some was just due to the nature of dealing with living things that can and will get sick/die. For instance, I ended up buying 80 turkey poults and lost almost 30, 10 at a fairly late stage to coyotes. I lost 4 of the 5 packaged bee colonies I bought, and the one that made it to the fall was dead this spring.
5. FAILURE TO MEET ESTIMATED DEMAND: While I was able to sell all pigs, I only sold half of the Thanksgiving Baskets.
On the flip side, some costs and income were not budgeted for and offset the scale of the potential loss. For instance, my disc harrow cost me significantly less than predicted. I made some income on hay sales that I hadn't considered. I sold weaner pigs in late summer of last year that brought in some much needed moneys. I spent about $60 on the website after I decided to design it myself.
Overall, my main issues were a lack of experience in running a business, inexperience with with animals I was producing, and a tendency toward over-optimism. Luckily I had another job and a savings to cover the shortfall.
The second year plan is laughable in hindsight, but it was basically an extension of the unrealistic expectations from the first year.
So given what I learned from that experience, here's the plan I developed in the spring of this year:
Halfway through the year I can already see how some things won't work as planned, but nonetheless, it's a lot more realistic than the previous. I think I capture all the costs, not making stupid mistakes. I was a bit unsure what to expect from the vegetable side of production, and I was probably a little too optimistic. One thing I did was to add a 10% predicted loss over the plan on everything I did (which was probably too optimistic). In the end, I expected a $5700 net profit at the end of the year--a far cry from the $22,000 predicted in the first plan (note that I tend to include depreciable assets as a one time negative expense in these calculations, which is not what I report on my taxes but it is how I like to look at things, for better or worse).
I'll keep working at getting better at planning, and I'd like to include estimated time commitments to the plan to get an idea of my potential wage and if/when it makes sense to hire a helper.
I'll keep working at getting better at planning, and I'd like to include estimated time commitments to the plan to get an idea of my potential wage and if/when it makes sense to hire a helper.
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