Profitability?

Hi, Terrabus,
I'm living in an apartment in Dallas, TX, and working on a business plan to make my farm profitable before I move onto it for the same reasons you quoted - horror stories to unbelievable stories of great income. That's what you need to do if you are really into doing it right. You have a good idea in sticking with specialty crops. I'm not so sure about the cheese as you're in an area swamped with cheesemakers who are well established. If you want to sell cheese, you need to do the same thing - specialty cheeses. What can you do with that goat cheese that not everybody else is doing?

I hate numbers crunching, but I've already figured out that the prices I was going to ask for were not enough and had to readjust them in order to break even in the first year. That's just to break even, not make a profit.

There are some hints that I can give you that will get you started on the way to making a profitable farm. First, mark these in your favorite bookmarks:
Small Business Administration's website: www.sba.gov
Homesteading Today's website: you've got it - keep it!
Mini-Farm Homesteading's website: www.minifarmhomestead.com
and contact Ken Scharabo at Scharabo@AOL.com and ask him for his e-book on how to make money on the farm. He's been a generous man with it and it's free. I really appreciated his kindness and willingness to share it. You'll find it an interesting read.
Second, use the SBA's guide for writing out a business plan. It will save you a lot of heartache and hard work.
Third, keep in touch. We all want you to succeed with your homestead farm. Let us know how it's going, if you need advice or just need to vent. We here for you.
Third, use common sense and don't let the naysayers get you down. They don't know what the future holds any more than you do. Trust in God and keep plowing!
See ya down on the farm! TXlightningbug :yeeha:

 

Hate to be the gloomy kid in class... but:

Starting a business with your heart is a bad move... and trying to "finagle" numbers in order to start the "business of your dreams" is basically the same thing. Business is simple, you go where the money is.

cheers,

 

Janon, I never "finagle" numbers. I follow the sound advice of the Small Business Administration which is to know what I'm doing and what to expect. To go into a business without having any idea of what will sell and for how much to whom and the like is to spend money without earning any money at all, much less realize the return of the money spent.

TXlightningbug :yeeha:

 

I don't think it would be realistic to expect to move out to the country, start a farm/business from scratch, and make a living without having an off-farm job. My parents were dairy/tobacco farmers, and DH & I now do the same thing. In our case, my mother & I both had public jobs--mainly for health insurance. While I wouldn't say we toil for "next to nothing," we're not exactly setting the world on fire either. The advantages of a lifestyle that you love cannot be measured in dollars and cents. I think you have a good plan with the specialty crops. My advice is to go after it, but maintain a second job that doesn't claim your body and soul.

 

In the interests of full disclosure, my husband and I married late in life, so we were unable to have children, although we invested a considerable amount of cash and time in trying. By the time we quit trying my husband had passed the maximum age for an overseas adoption (and we all know how long it takes to get a baby born in the USA). Our home make us inelegible for foster children (too small) so... we have dogs. Many dogs. But dogs are not the same as having the responsibility and expense of children. As Helen Nearing ("The Good Life") said "you might be able to do this if you had children, but I don't think you could with small children." Obviously people do, but children, at a certain age, are a drain on resources... energy, time, cash, etc, and they do alter the equasion.

My husband holds down a full time decent job off farm from which our health insurance doth come. Blessed be his employer, may he live long and prosper. OUR FIRST PRIORITY, therefore, is to make sure Peter's job is secure. If he needs to work late, we accomodate that. If he needs to go in at midnight... whatever. If farm chores and work conflict... farm chores take the back seat.

I work part time in a home based business. The typical female owned company in VT brings in a gross of $5000/year, and I'm pretty typical. $5000/year would not cover, completely, our property tax bill (welcome to VT ). But my work enables us to farm, because I am the primary farmer.

And we own... a rental unit. A cottage on our property. Which is the most stressful, annoying, and irritating thing we do... and is the dirty little secret of many successful farmers. Rental property. Or renting rooms in the farmhouse to boarders. Or running a seasonal B&B. Anyone who is looking at making the transition from whereever into farming needs to know this dirty little secret... a whole lot of farmers own rental property. At least in Vermont. Or they crush their kids into one bedroom and rent out the rest seasonally. Or they build an apartment into the barn and move in there and rent the farmhouse. Real estate rentals, done right, can pay your property tax and a good portion of your mortgage, along with providing you with lovely tax advantages.

The second dirty little secret: the most successful of farms are also tourist attractions. You don't think the locals have money to spend on gourmet cheeses or $48/gal maple syrup do you? Heck no. That's the nice guy in the Lincoln Towncar touring VT to see the pretty scenery.

Third grubby secret: successful farmers (the ones turning a profit) know all the government programs and how to use them. They know how to write grant proposals to have their barns rehabbed by "Barn Again." They know how to get the state to pony up for their new cheesemaking plant. They are politicians and they are clever. This is not old school farming. This is modern, researched, every penny parsed, farming. These farmers know their books, they know their costs down to the penny. They can calculate break even on a new piece of equipment in their heads and get it right down to the penny. This is business, on a grand and amazing scale. Standing in a feed store I know exactly how many dozen eggs I'll need to sell, or how many broilers I'll need to produce to justify buying a new water font: for $6.

And the fourth: these people are technically saavy. They may hire someone like myself to build them a website, but they know how to maintain it. They know how to build successful displays at farmers' markets. They know how to network. They have contacts in their roladexes that cross state lines and cross the country and they don't hesitate to use them.

Not, in a word, romantic.

Bored? Let's talk some numbers.

 

I agree with Nette 100%.

Go after your dreams, but think with your head, not your heart.

Personally, I think you'd be hard pressed to turn a profit on land that has a "buy in" price of $3000 - $5000 per acre. Add in health insurance costs, property taxes, vehicles, farm equipment, housing.....and you'll be lucky....very lucky just to cover monthly expenses.

Building a "simple house" is no longer possible in most areas of the country. I'd be very surprised indeed if the location you're thinking about in Illinois doesn't require building permits, and then building inspections which require complete adherence to code.

Follow your dreams, but do so with both eyes wide open.

 

My husband and I work 150 acres in a resort town in Vermont. You can see an arial of our place as part of the background on the page http://www.gatewaytovermont.com/summerindex.htm When I'm not doing this, I'm a business consultant with a specialization in online marketing. My husband is a process designer for a local manufacturer. We walked into farming because this property was once my family's hill farm. At the turn of the 20's century (around 1910) this property, the area now completely in forest, was open fields and a sheep farm. We decided when we took over the farmhouse 10 years ago to start farming again. Our 10 year goal was quite modest: acquire the equipment we needed and reach a break even point in 10 years. Our 5 year goal going forward is to establish our Icelandic flock as one known for the quality of its fleece and tameness (not something usually associated with this breed) making our animals more desireable to the "spinning flock" market.

Our most profitable "product" from our farm is our rental unit. The rental unit costs something to maintain, periodically has vacant time, but consistently, year after year, has paid our property taxes and sheltered some income through depreciation. I can't emphasize enough how valuable to a start up operation having a rental unit on your farm can be. I know people who would have lost their farms but for that steady income from the rental. And, bonus, almost all our tenants have been so thrilled to be on a "farm" they've pitched in willingly when we need an extra hand.. for free. Free labor. Everyone's dream.

Our second product is wood. We cut and split wood which heats both houses... roughtly 10 cords a year. Wood sells for $100-150/cord here. We'll split the difference and call it $125: $1250. My amortized cost for the tractor and other equipment needed to do this is $300, my variable expenses run to $60.. leaving us a net profit of $890. Now, this is not cash income. It is accrued value. Or $890 plus taxes (SSI, income) we didn't have to earn off farm. We could, and possibly will, cut wood to sell. BUT processing wood without large (and very expensive) equipment is a young man's game. So we might sell log length and forgo the more "profitable" firewood market.

We sell eggs, quietly, to friends and collegues, which keep our chickens in feed and allow us to replace them and grow about 25 meat birds a year at no cost to ourselves. net value: $300

And then.. there are the sheep. Which will turn a modest profit someday, but not today. And to turn a profit, we'll need to move. We don't have enough pasture (roughly 5 acres) to hit critical mass.

Having been at this for some time, and had the opportunity to help and work with a number of successful farms, the overriding contributing factor to a NEW farmer's success seems to be a willingness to accept rental property as part of the equasion. Followed by a willingness to exploit any opportunity the government is willing to offer, from low interest/no interest loans, to grants, to any free publicity etc. The ability to have one household member in an off farm and stable job with some benefits gives a farm family significant flexibility and the ability to weather down times that they might not otherwise have. And lastly, and very significantly, the ability to market, to be a saavy marketer, either on farm or off, contributes significantly to viability and long term success.

Again.. not romantic. But I personally am not willing to accept that farming=abject poverty. I farm because I enjoy it, and because I can't imagine doing anything else. But the ideal, of farming full time, is quite a ways in the future... and another farm away.

T

 

Wow this is all great information! Many thanks for sharing. I am planning on building a "hunters campground" on our place near the main gate which borders forest service land and is a fav hunting area for those within several hundred miles. I figure they would use a secure place to park their campers and tents during hunting so it would be safe to leave the camp as a group rather than always leaving one person behind to guard the stuff!

 

Terrabus, maybe you should move to montana? Land is cheaper if you dont need all the amenities and building codes out in the country are pretty slack.

 

I think you need to define what you mean by profitable. Is it simply having an excess left after deducting expenses from revenue? How do you consider depreciation?

If we didn't buy 2 additional pieces of land (adjacent to our original) and make capital investments in equipment, we would have been profitable for the year but we wouldn't be able to live off that profit. The depreciation on our barns is $6k per year. That helps cash flow but makes our profit picture look worse than it really is.

In your post you mention land but you don't mention equipment. This year we are investing about $15k in equipment and that is barebones scraping by.

mortgage

Our plan has been to build up revenues but not take anything out for now. This allows us to re-invest in equipment, etc. If it wasn't for us buying the additional land and starting up processing of black walnuts we would be on track with our plans for building up our farm business. If all goes well we will sell enough black walnuts to put us back on schedule (or even ahead). We originally calculated it would be 5 years before one (or both) of us could quit our job(s) and devote fulltime to the farm and MARKETING our products.

I think the key thing is getting out there and marketing what you produce (and producing enough that the revenues are meaningful).

I agree with the rental idea brought up by MorrisonCorner. At some point we will expand our current cabin to turn it into a rental. This will be after we build our house.

Mike

 

TXLighteningbug said it....get some good business advice.
You are talking about starting a small business and wanting to succeed. So....

The Small Business Admin. has an online site with great startup info. All of it is free, make an appointment at your local SBA Business Information Center.

SCORE, counselors to America's small business offers FREE confidential business counseling. To find an e-mail counselor go to SCORE.org and request one.
You can also find the SCORE chapter nearest your soon-to-be business to get some homegrown advice on markets, etc.

Have you started your business plan? Have you gathered your net worth information and an accurate complete detailed budget of what it takes for you/family to make it for one year? It is often recommended that you have savings to cover those expenses for 12-24 months while the business gets on its feet. Now, you're on this site so you know that many do it on a shoestring. But how long does YOUR shoestring need to be?

The SBA and SCORE can review your business plan and guide you as you look into applying for a business loan or finding a location. Remember, SCORE is volunteer based and many are older folks. Be patient and clear with what you need from them. If they can't help you, ask their advice for someone who can. Contact the Chamber of Commerce in your new farm area and amybe even the Extension Service for more realistic farming advice re: the market you wish to sell in.

 

I was just talking to an ag salesman Monday night and he said blueberry farmers are making money faster than they can spend it. It's the best crop he knows of in South West Michigan


mikell

 

My husband and I are at constant war over equipment investments. He is of the opinion that God himself sanctions power tools. Why, doesn't the Bible say God gave man dominion over the beasts? A direct reference to internal combustion!

I prefer hand tools. My way is infinitely cheaper. His way gets the job done in a timely manner. We used to (read: I, me, the wife, used to) hand split all our wood. Then I ran out of time to do all that splitting (plus, I was... er... getting older) and we bought the wood splitter. It burns fossel fuel, makes a hellish amount of noise, and splits, endlessly, without tiring. But it cost money upfront, money to maintain, and money to run. So you need to be able to calculate a break even point. If time is money... how much time will this machine free up, and how much money can you make with that time? As it happens, this tool saves at least 6 weeks of hard hand work for me, and allows me to work at a part time consulting postion which yields twice, annually, what this machine cost initially. Good return.

The vegetable garden on the other hand is constructed entirely with hand tools. We don't own a tiller. A tiller large enough to handle our rocky soil runs around $700-1000. We would probably have bigger gardens, but more produce than we could use. There is no waste of time like canning more corn than you eat in a year. The tiller we'd use 3 or 4 days out of a year. It takes me 2-3 days to turn the garden over by hand. No savings. So no investment.

Every purchase of a machine is a balancing act between what it costs, what it saves, what it might generate, and a rental or borrowing option. Every tool is a battle for resources. Finite resources. But if you walk into a farming situation thinking you'll be doing this all with a pick, shovel, and hoe, you better make sure the whole family is on the same page or you're going to have some monster fights.

We keep a bottle of champagne in the basement at all times... when we start rocking in a battle over equipment we crack open the bottle of champagne and toast to what we have... not what we want. It keeps the marriage together. And if you can't resolve the issue through a bottle of champagne... put it on hold for another day!

T

 

Gosh, it doesn't have to be that complicated. I like to keep things small and simple, with minimal money invested. Yes, it can work. I am currently making a living for myself and my son for 6 months out of the year on 4 1/2 acres with no tractor. I have worked off farm in the winter months only. I did invest in a commercial greenhouse ($10,000 - paid for itself in less than 2 years), and a troybuilt rototiller (used - $300), a deer fence for two acres ($1100), and drip irrigation for 1 acre ($1200.) I have applied for no loans or grants, and do not have a rental unit. I pay as I go - always! No credit purchases - None! None! None! Am I profitable? If you figure that I raise most of my own food, am healthier than any horse I've ever known, and live a clean, healthy, simple lifestyle that costs very little money, don't need to spend money on gas and vehicle maintenance for commuting, then yes, I am profitable. I buy clothing, equipment, etc, used. I make do without spending money whenever possible. We utilize the library instead of buying books, etc. There are so many ways to simplify and make your living expenses lower than you ever thought possible. Do I feel deprived? No! My 9 year old son said yesterday, " Mom, we'll never be rich." I replied, "Not in money, but we're rich in more important things." He said, "Yes, like love and freedom to do our own thing." Wow. I probably put those words in his mouth over the years, but it sure was nice to hear.

So, you need to ask yourself, what farming model do I want to follow? Big and expensive and up to your ears in debt? That model has not been working well in recent years. How about small and low input/labor intensive /specialty crops? That has been working reasonably well for quite a few small farmers. If that's the route you want to go, consider these things:
1. Go where there is a market consisting of people with money who want finer things.
2. But don't pay alot for your land. Having no mortgage would be ideal, but if not that, then as small a mortgage as possible. Realize it may be some time before you can live in anything other than a trailer. But, so what? Many of us are perfectly content with our simple, cheap, low maintenence trailers. If freedom from debt appeals to you more than luxuries, you may have what it takes to be a small farmer.
3. Diversity is the key to stability. One crop fails, three others thrive. Plan to market several different things in several different ways. I currently sell veggie and plant starts through a catalog and Farmer's Market, and sell produce through my CSA and at Farmer's Market. I also sell eggs. The eggs are not very profitable, but as has been mentioned, pay for my eggs and meat, too. And it keeps my CSA customers happy.
4. Produce what your customers want. Listen to them. Try knew things every year. You will be surprised, and may end up producing things that you had no intention of producing, but they sell and you make money on them.
5. Consider a CSA. It is working very well for me. Talk about security! The crops are all paid for before you plant them! And your customers will be your biggest fans and will give you loads of encouragement, even if you have a weather disaster that destroys some crops. It happened to me last year. Had I been relying on Farmer's Market sales only, I would have floundered. But my CSA customers never lost faith or got upset. They knew they were taking a risk along with me when they signed up. And you know what? They all signed up again this year and referred friends as new customers.
6. Keep it simple. You just don't need a lot of land and equipment to produce great stuff that you can sell for top dollar. In fact, I believe that the bigger you get, the lower your quality.
7. Grow the best and charge top dollar. Seek out markets where your great stuff is appreciated and folks are willing to pay for it. My sister grows and sells bouquets at our local Farmer's Market. There are lots of folks selling bouquets there for $5 and $6 each. No one can make a living at that price, so my sister was quite discouraged her first couple of years because she produced bouquets much like theirs and charged $5 and $6 dollars. She wasn't making it. So, last year she changed tactics and grew huge flowers (lilies, gladiolas, delphineum, sunflowers, etc,) and arranged them in massive, stunning bouquets and priced them at $16 to $20. She sells out most weeks. She now makes $250 to $450 every Saturday. You should know that she has less than 1/4 acre in flowers and works 2-3 days a week as a nurse.
8. Study, study, study. Read all the books about small farming that you can get your hands on. I highly recommend "The New Farmer's Market" if you intend to sell at one. Pay very close attention to the chapter about display. It is very right on. Display makes the initial sale, quality brings them back. I have so often heard farmers complain that they had poor sales on days I had banner sales. I look at their display (or lack there of), and I know why.
9. Consider hosting interns. I've had wonderful experiences with them. Their youth, energy, enthusiasm, and strong backs will do much more for your farm than just providing cheap labor.
10. Remain flexible. If you have your heart set on producing one thing, but the market in your area is flooded, either do it way better than anyone else or do something else.

Anyway, this is just a list of things to mull on that provide a different angle than the SBA's business plan information.
Good luck to you!

 

Here is a strategy which a few people are using successfully here in WA state. Here it is illegal to sell raw milk, but people want it. They want organic, raw milk. You can legally consume your own cow's raw milk, however. So what some people are doing is selling "cowshares". Consumers sign up for "x" amount of milk per week, and that becomes their portion or share of that cow. A co-op cow. Rather like a CSA really. People are paying $6-7 gallon for raw organic milk. The farmer is guaranteed customers (cowsharers), and is getting retail price for her product. If a cow puts out 6 gallons a day, that's $36 per day per cow. 7 days a week. How many cows do you need to make the money you need every month, factoring in feed and freshening/downtime & vet? If you had 8 cows, that's $284 per day gross income to work with. And you mostly only work twice a day. But it is 7 days a week. But you could give a high school kid a part-time job covering some of the milking shifts.

This model will only work if you are near a cosmopolitan area where you could get the customers/cowsharers who appreciate raw organic milk. Both the farmers I have heard about who are doing this have people on a waiting list. I should think goats could work as well.

 

One step at a time, is good thinking, sometimes we take one step forward and two back in farming..... I grew up on a small farm, 240 acres, dad lost it in the 80's for a mere $30,000.00 mortgage, not much we or a whole lot of farmers in that time period were doing wrong, just paying to high interest on to little return did not make the grade. so I moved to the cultural hub of the universe and actually moved into town for a few years, 4 years ago at 37 i got married for the first time, now have a wife, 3 kids, ages 3, 2, and 2 months.... and due to the economy around here we are about to sell out and move to somewhere we can market anything to make a farm work better. I work as a system admin for a small internmet company... 5 days a week and this being our slow time i can only bill billable hours so 5-10 hours @ $20 dont add up very fast on a 40 hour plus week..... my wife has gone back to work parttime at the funeral home... 4 hour 3 days.... pays for daycare and gas for the week...... nothing more....

the chickens are now laying again... last year in december at full production, a dog had chicken dinner, wiped out a nice customer list.... fences dont always work. perhaps in 2 weeks my chickens will be up to 3 dozen a day and i can trade enough to pay the feed bill as long as i can buy from local farmers and cut out the feed store... and i like the owner of the feed store.

Our horses dont earn a dime however they keep the fire hazzaards down by eating grass.... this year it got ahead of them and is over 6 feet tall in some places... which a horse wont eat down...... time for cutting by hand.....

The nieghbor who cut my hay for the past 3 years decided not to cut anyones hay this year.... cant find anyone willing to come cut, 3 acres is not enough to warrant amchinery for me and im not into custom haying anymore..... 1985 i put up 1400 acres of hay with 2 of my relatives....long siummer, hay prices cheap... no money made.... cattle ate good that year.

What you seek CAN be done, attitude will get you there, ignorance will set you back, skills will keep you persisting until you succeed as long as you have the dollars and time to ride it through.

reading what others have done is good, researching speacialty markets is best, exploring markets around you before you settle down is one thing you could do.

http://www.acresusa.com/magazines/magazine.htm is agood place to start..... people who have done somewhat of the nature you are talking about..... some bigger some old hippies, some new age idiots... some farmers who made a transition into small markets.

http://www.freeplants.com/ might help you find an income that you did not know you could find in the city itself.... and be an income for the farm you seek. Sopme people get into a rut, the successful people turn out of that rut, the very sucessful folks make the rut smooth..... ok i fell in a rut..... trying to get out now.

Just rambling, but you can suceed and you dont need machinery to do everything, but a plan "b" helps to keep the smoothness in the lifestyle.

William

Kooskia Idaho [the ultural hub of the universe]