Build a solid business plan
When people are looking to make a move from part-time to full-time farming, the most important thing to consider is their business plan. Since there are probably not any historical financials or financials from the operation, a lender’s appetite to lend is most focused on what a customer is able to present.
A business plan is crucial and should be based on market analysis, how similar operations are performing in the industry, financial projections and best- and worst-case scenarios.
Be sure your business plan answers important questions such as:
- What’s the current market like?
- What are my long-term goals and objectives?
- What is a feasible level of initial investment I can make?
- What ongoing costs will I incur?
- How much revenue can I generate from the operation?
- What is the anticipated yield or output?
- How will I promote the farm and its products?
There are resources available to assist with building a solid business plan including the Developing and Educating Managers and New Decision-makers (DEMaND) program through Michigan State University Extension. The program helps the next generation of farm operators develop into managers and decision-makers on the farm by learning about financial and business management strategies.
Create a realistic budget
Another factor to help guide new farm operators is being realistic with your living expenses. Moving to full-time farming means relying solely on your farm income for you and your family’s livelihood. Ensure you have a solid financial plan in place to cover living expenses, farm maintenance costs and unexpected expenses.
Consider the profitability of your farming enterprise and create a realistic budget. Those who have had the most success have run projections based on existing businesses or have worked for an established farmer to learn from them.
Consider crop insurance
Risk management is another important thing to consider for up-and-coming farm operators. Farming is inherently risky, as it is heavily influenced by unpredictable factors such as weather, pests and market fluctuations.
Crop insurance provides a safety net against losses due to these risks, allowing farmers to manage their financial exposure and plan for the future more effectively.
Crop insurance is also a good way to hedge a market that depends on Mother Nature for revenue. You can even get a certain percentage in subsidies off your insurance premium because you’re just starting out. Be sure to talk to a crop insurance specialist who can help create a safety net for long-term stability.
Benefit from resources
Farming takes courage and resources — both the tangible like financing and the intangible like education and networks. Several organizations offer support for the intangible needs, like the DEMaND series noted above.
At GreenStone, our mission is focused on both through our CultivateGrowth Program for those who have been farming for 10 year or less, who have a farm income below $350,000, or are 35 years of age or younger.
There are several components of the CultivateGrowth program including to provide funding, networking, education and unique financing models to serve young and beginning farmers’ individual needs:
- Supporting continued education and personal growth by offering up to $40,000 in CultivateGrowth Grants.
- Offering new or young farmers unique learning and networking opportunities by working with an experienced farmer through CultivateGrowth Mentorship.
- Providing financing for unique and individualized situations through relaxed underwriting standards often based on projections, rather than historical records.
- Partnering with FSA to provide joint financing options, which can offer lower interest rates and/or require lower down payments.
Farming is not always an easy road — it can be a costly investment with much uncertainty. However, if you take these things into consideration, you’ll set yourself up for success and be ready for growth next season.
This blog was originally published in Michigan Farm News.
