By Rick Hood
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January 13, 2021
Everyone starts farming for a reason. Most new farmers that did not come from farm backgrounds have dreams of changing to food system, or improving the environment or some just being able to work out side all day. It doesn’t take long in the occupation to realize this can be a very stress full career. Farmers not only have to deal with weather, pest outbreaks, new regulations but the financial reality that this is not a very profitable career choice. It has benefits in many ways but finance is usually not one of them. It is one of the main reasons that farmers consistently rank in the top 10 of occupations for divorce and suicide. Whatever the reason you start farming the reality is if you don’t quickly realize it is a business, and unless you have other income sources you will not be in business long if you don’t treat it as such. Whatever your motivations for farming are, the change you wish to make, the people you wish to help, the lifestyle you wish to live stops when you go out of business. So cold as it may seem, staying in business is number one priority. That doesn’t mean hook or crook business. That means an business with integrity and a financial balance sheet that lets you farm another day. With that said you have only one choice to be profitable. Make more than you spend. Kind of obvious, like the team with the most points wins at the end of the game. So based on this you need to either concentrate on making more or spending less. A word to the wise, very few businesses every cut their way to profit. You either cut costs to reduce a loss, or cut costs to make more profit. The idea of cutting costs to go from loss to profit rarely works for long. The problem with small revenue businesses is that they have a hard time carrying overhead, yet alone making a profit. A small farm can have a lot of overhead. Infrastructure (High tunnels, wells, roads, buildings etc), labor, machinery, irrigation all are part of your overhead. You need to have them whether you have a crop to sell or not. Some of these costs are consistent no matter how large or small the crop. One way to lower costs is to take advantage of preseason discounts, Fertilizer, seed and irrigation supplies will at times offer a preseason discount to get your order early. You order and pay early in the season and they will discount up to 5% typically. Many times these discounts are graduated, 5% month one stepped down by 1% each month until season starts. Some companies start these in October of the year prior. This gives them cash flow in a slow time and helps them plan demand so they get a better idea of what inventory to carry. This is where the rich tend to get richer. If you have made money the previous year you have money to spend to save money. If you have credit available from other sources you can take advantage of the discounts too. Of course you have to calculate the cost of credit vs the cost savings of buying early. If you are barely getting by then you will have to pass on these discounts. A way of lowering costs escapes you because your business is not strong enough to take advantage. Another advantage of taking these discounts early is tax buying. By buying a product in the year prior to use you can use it as an expense to lower your current years income and thus tax burden. This is only applicable if you made enough money to have a tax burden. You also need to be aware of the situation. For example, are taxes and my profits going up? Maybe I should save that deduction till next year? You need to have a real time view of your financial situation to do this. A pile of checks and receipts not in your accounting program will be of little help in making this decision. Finally another way to lower your costs, especially on seeds is to have an account with a company. Now realize the bigger you are the more this helps. If you are buying $10K worth of seeds a year, you have a company’s attention. If you are buying $5K they are still interested. If you are buying $100 it’s not of significance to them. Start early though, explain them you are growing and if realistic you will be up over a $1000 soon. Set up an account, get an account executive to work for you if they have them. It costs you nothing and saves dollars. Sure it is easy to buy seeds off a web site, but you never get the best price that way. Going through an executive gives you better pricing if available, an advocate to search for seeds they don’t even list on a web site and sometimes other perks like reduced shipping. Sometimes you can get extended terms too. We have been offered no pay till July terms by some companies. That really helps to actually harvest something to sell to pay for the seeds instead of buying, planting and waiting. Build a relationship. You should do this too with a local hardware store, machinery supplier, any business you plan on doing regular business with. When you have an account you are a step ahead of the guy walking in the door new. Do the business set up now, in winter, when you have time to fill out the paperwork. It will save you money later. It also saves time if you have an account with a vendor and send someone else to pick up, then call ahead and say just put it on my account. You will usually get 30 day terms. A great way to bridge a short gap to profitability, like when you need boxes to ship and you know you are going to be paid in less than 15 days for the product. Taking the most advantage means you need to work yourself into good financial shape ahead of time. This is the way to boost profitability but if you are operating at a loss, most of these tricks are out of reach to your operation.