Money Money Money Money

7/14/2013

This post might teeter between information, rant, cry for help, and wisdom. Buckle in.

I've been thinking about money a lot lately. This shouldn't be too surprising as I'm managing a small business. It's also not too surprising as I've always been a bit (or perhaps more) neurotic about the green-turned-digital coinage. I've never had to worry too much about money, even though I've never made that much, because I hardly spend any at all. The farm requires me to spend, and I don't like it.

I'll start out with some accounting. Here are the expenses for the first half of the year.

And the revenue

We're currently at our low water market for the year where we've paid out a large amount of money in costs with little money in return. This is one of the toughest parts about farming--especially with animals. I refuse to take on any debt, so the business needs adequate liquidity to absorb these front-loaded costs. Some of the costs are absolutely essential to the business: pig feed, fencing, rent, and seed. Others I wavered on, but ultimately decided the investment was worth it: the Farmall Cub ($2000) and cattle. Sadly, not all investments work out, as we experienced this week when one of our two steers developed pneumonia and died (he was smaller and sicklier looking from the start and perhaps I should made a better decision about buying him). To add insult to injury, we also forked out money on vet supplies to treat the animal, knowing that it probably would just add to our loss in the end (stare down a sick cow and then decide if organic meat is worth it if you can't give antibiotics--not that they helped in this case).

Revenue is already starting to pick up now that we've opened the Chuckanut Farmstand and attended our first farmer's market--but it's coming in slowly. With only one deposit received thus far for 1/2 pig, our path to profitability for 2013 is looking overgrown. It doesn't help that I tend to get discouraged very easily.

Taking a step back to look at the big picture raises another idea that I've been grappling with lately. Namely, can a small, single-family farm with no more than a few employees (not volunteer or unpaid interns) make enough money to provide a living wage to the farm owner/operators and all employees. Coming up with a living wage figure is always going to be debatable, but this website provided a reasonable estimation. It gives different values for different family situations (single with 3 kids requires a higher wage than married with no kids). The lowest wage is $8.55/hr for a single person with no kids. This is assuming 52 weeks of employment at 40 hours per week. A married person supporting a spouse and 2 kids needs $18.56/hr. These wages are assuming zero luxuries like internet, cable tv, cell phone, and vacations. Federal minimum wage is $7.25, and small farms can pay less in wages due to an exemption.

If I want to hire an employee, I would feel uncomfortable paying them anything under than $10, and I would prefer $15-20 (I'm sure there are taxes and other costs to having employees that I haven't researched yet and don'te even want to know). For my own salary, I need a minimum of $30,000 year to cover my 1/2 of our annual expenses and would prefer $40,000/year to make sure I can cover my medical insurance, take a vacation, and potentially even save money! To get to that level, I'd need to make $16/hr with an average 50 hour work and two weeks of vacation. That's not unreasonable to me.

The problem is how to get to that earning level. One problem is the seasonal nature of agricultural work. Anything vegetable or crop related has to occur between March and late October. Hoop houses can extend the season a bit, but there is still a big chunk of time when it's going to be difficult to find 50 hours of money-making work to do. In order to balance that out, one will likely need to work more than 50 hours/week during the peak growing season. This isn't unreasonable, but it can veer into burn-out territory in a hurry once those workloads start going up. I know some people who are into the triple digits. Animals need care year round, though, although this farm is focused on keeping outside winter work to a minimum to avoid stress on the animals and on the farmer. Worrying about workloads is an academic exercise, though, if you can't actually make/grow/raise and sell enough valuable products to earn that 40k, and it's still hard for me to see how a single farmer can get there on his own.

So, I want to keep pursing that question I posed above. Can a small-farm farmer make a living wage? Right now, this farm isn't, and the future is murky, but I'd love to hear from those of you who are succeeding.

20 Comments

George

7/14/2013 11:30:04 pm

It is totally possible to be successful as a small farmer. I forget how many acres you are working with... however I've done well with 2 acres of vegetables, selling at 3 farmers markets, a small CSA, a 200-300 broilers a year. Is it 50,000 a year, heck no. However, it is enough to pay me a living wage, health insurance, liability insurance, equipment repairs/upgrades. I produce more than i can sell however, so the remainder gets donated to a few local food banks and churches for a tax deduction. On average I SELL $200-300 a week at each market, for $900 a week gross from Late May through mid November.. approximately 6 months... the CSA is small with 10 members, bringing in another $250 a week.

As you know, it is a lot of work. I do not have the acreage or quality pasture available to do cattle. I make about 25k a year gross sales. For me that is enough to pay all my bills for the entire year, and still have a little bit set aside for each new season, upgrade equipment etc.

It CAN be done.

Jeff

7/15/2013 12:00:30 am

Thanks for sharing, George. Very encouraging!

bruce king link

7/15/2013 03:38:43 pm

Have you considered initiative 502?

Small acreage, high margin crop, easily transportable, 5 greenhouses gives you continuous production, and I think you could net far more than $40k per year.

bruce king link

7/15/2013 03:53:10 pm

Most couples who farm in the USA have one person or both, who have off-farm jobs. Income provides a cushion for when the crop doesn't work out as planned, gives access to health insurance and other benefits, and allows you to deal with the seasonality of the industry. "most" = > 85%

I think that an intensive garden with popular vegetables is very possible during the spring and summer. Fall is when the meat is harvested and possibly your income could come from that. Winter is a problem; you can't graze, and you can't grow and you can't till... that's when I plan, and eat the food I spent the spring and summer storing.

You like numbers and spreadsheets. Why not do a full-farm spreadsheet and see what sort of quantities of things you would need to make your income goals. Your steer is a reminder that there's shrinkage, too -- so figure that in.

My girlfriend andrea worked for a vendor at the farmers markets all last summer; what sold well at the markets she attended were eggs -- they all sold out every time -- salad ingredients, lettuce, tomatoes, onions-red and green and yellow- basil, kale and bread.

the hard part of farming is not producing the food. It's selling it. That's the part that most farmers don't understand, and honestly, that most farmers dislike. They'd rather be tending their crop than feeling like a huckster. But that final step is what makes it possible to do this farming thing we all love.

A conservative farm plan would be one where you have sold the animal before you purchased it. Or the vegetables, or whatever it is that you are producing. That's why a CSA is set up the way it is -- the upfront costs are paid by the customers and it substantially reduces the risk to the farmer.

Adam link

7/16/2013 03:27:03 am

Totally agree Bruce. I think in most ventures it's the sales/selling/marketing that make or break the business. CSA's are a great way to go, but smart customers will want to see some kind of track record, before they plunk down coin. Lots of questions, and the answer's are different for every farm/person.

Jeff

7/17/2013 02:32:11 am

I do have a business plan, and I should probably get around to sharing that too. It's been interesting to see how unrealistic I was in my first year projections. (It's actually been a bit embarrassing and that's partly why I've been hesitant to post it ).

Kelli

7/16/2013 05:03:40 am

Really enjoyed reading this post and all of your very honest blog posts. It is refreshing to have someone in farming be so open about the highs and lows! I've shared your post with our podcast listeners as well. We both work off-farm jobs and from my experience, it is very difficult to generate enough income from a small farm. I suppose it can be done...if the universe aligns just right...

bruce king link

7/18/2013 02:37:20 pm

What podcast is it?

Jeff

7/19/2013 04:38:37 am

Thanks Kelli, I hadn't listened to your podcast before, but really enjoyed it (figured out who you were after seeing a big bump in traffic from coopcast on my Google Analytics). Your point about the pre-WWII farm nostalgia was something I was thinking about as well and should be good source material for a good post. When my grandmother died, my mom cleaned out her house and found year and years of accounting notebooks for their dairy farm. If I can get my hands on one of those, it might be really interesting to see their income.

George

7/16/2013 10:01:40 am

Totally forgot about the 502 initiative in WA... that *IS* something worth looking into.... security would be a concern....

Talk about a cash crop.

Jeff

7/17/2013 02:29:52 am

Growing marijuana is not for me, although plenty of people have asked me if I plan to do it. I'm interested in growing food!

Rich

7/17/2013 03:29:26 am

I'm not an accountant, so my understanding of the correct terminology for expenses, revenue, assets, etc. might be slightly off, but are you figuring your YTD expenses and YTD costs correctly?

It seems to me that money spent on things like tractors, breeding stock, and fencing should be accounted for differently.

Disregarding the depreciation you could claim on your tax return, you spent $2000 on the tractor this year, but it still has a value next year and the year after If you decided to stop farming, you could sell it and get some of the purchase price back (or even make a profit) so buying equipment is similar to putting money in the bank and withdrawing it in the future.

Another way of figuring how much you actually spent, is to consider the depreciation (again I'm a little fuzzy on all the ins and outs). If you can depreciate a piece of equipment over 7 years, then you are actually spending closer to $285/yr on a $2000 tractor.

Or, if a fence has a 20 year lifespan, you are spreading that expense over 20 years instead of just the first year it was installed.

Jeff

7/17/2013 04:58:02 am

Rich, you're right about the accounting, at least for tax purposes. I'm posting in terms of the actual money I've spent thus far this year. Since I don't want to take on debt, anything I spend money on, even if it is a depreciable asset, needs to balance out with my revenues (and cash on hand, which right now is close to zero).

Heather link

7/17/2013 11:59:28 am

Hi Rich! I hope this helps. What Jeff is discussing is more or less an informal statement of cash flows. His numbers are accounting for his actual cash in and out of his business in a given time frame. A statement of cash flows is a great way to assess the viability of a company to be able to handle their financial commitments.

Mike

7/19/2013 04:51:05 am

Yeah I know the feeling, I am struggling just to have the farm cover its costs never mind pay me anything back. I am always investing in things, I just bought an old hay baler to do my own hay instead of buying haying or paying someone to come in and bale it. It should eventually pay me back and I do have an asset, but it never seems to end, and now there are more things that need to be fixed than ever.

My situation is a little different where I work full time off farm and then come to do chores and family stuff.

Good Luck and please keep us updated on what you are able to come up with.

Maria

7/22/2013 04:37:25 am

I am not a farmer but I am a small business owner so I would like to make a few observations that I have noticed, not just on your blog/website but many of the small farm sites I've visited as I pursue sources for my own sources of local, sustainable food.

I clicked on your farm store link. Nice picture. Where's the address? So I clicked on the 'About' link. Nice map. Where's the address? Just like a business email that contains a signature with contact information, your banner should have your address or the location of the farmer's market where you set up shop. [or both]. Your phone number or email [however you want potential customers to contact you] should be obvious. If you have set hours make them obvious.

I think that a lot of small farmers would do well to find customers FIRST and then grow for them. Not just a CSA but are there any small restaurants near you who would love to offer heirloom lettuces? How about the local meetup of foodies? I'd bet they'd love to hear more about your farm. What about a local book group? Contact them and offer to come to the discussion of Animal, Vegetable, Miracle after they've read it. In most businesses it takes years to build a customer list but once you do, it's all you need.

If I were starting my farm I would start with the list of 'Top 12 vegetables you should eat organic'. Anything on that list - strawberries, potatoes etc. that I could grow, I would. As a consumer I would just like to say, enough with all the damn kale. I don't need the organic label, just local sustainable food. I don't need huge boxes of greens I can't work my way through. BUT, I will pay through the nose for local pesticide free strawberries or tomatoes.

Good luck. If I lived anywhere near you, I'd buy a pig.

Jeff

7/25/2013 10:17:59 am

Thanks, Maria. In general, I am trying to grow into demand. It can be hard with things like pigs where your minimum unit of production is a litter and where it is inefficient to keep a boar and only 1 sow.

Good comment on the lack of contact info. Jen is in charge of the farmstand and the farmers market this year so it's been a little difficult figuring out who should be updating what on the website in regard to those efforts. Mostly, I'm not stressing out about it too much and trying to improve things slowly.

Maria

7/22/2013 04:40:16 am

I also want to add I just discovered your blog and it's excellent. I can't wait to read my way through all the old posts.

David

7/22/2013 10:45:53 pm

Very interesting.

I would think that you really do want to divide up the life of the durable goods over time. Yes, you spent $2, 068 on equipment, but if it lasts 10 years, then you really only "used up" $100 so far this year. Accounting isn't just to make things hard, it's to match up what you used and what you earned.

Also, you probably grew your family a lot of great, tasty food. You should factor that into your income.

I don't know if either of those would make or break you. But it might make it a little less depressing.

Jeff

7/25/2013 10:29:25 am

It's a good point about depreciation, and one I waffle over. I think the temptation for me (and a lot of other farmers/humans) is to go a bit equipment crazy. When I see cash in my account, I tend to think about how I can spend it on equipment. It's really important to me that that purchase be able to make me money in the short term (not just make my life easier). In addition, any piece of equipment/fencing/misc infrastructure is going to require some maintenance that will add to the cost over time. When dealing with old equipment, those costs can quickly add up to more than the original cost. When I do my taxes this year, I may very well make a profit on the year even if I have less money in the bank account than when I started the year.

In regard to your other point, we do take a lot of happiness and pride out of the food we grow. I think it's important to keep the business completely separate from our personal monies, so I charge myself full price on anything we produce on the farm. Of course, I'm very happy to support such a great farm!

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