Check Margins Before Scaling Up

Farms start off at a small scale for many reasons but many owners realize they want or need to expand. Expansion  most often presents the potential to increase from a part time income to earning a full time income from the farm. Before you decide to expand you’ll want to check your “operating margin”. Here is a basic technique to evaluate your operating margin (there are often many ways to do these calculations but let’s keep it simple). Use this cash flow statement here.

  • Add up all your income for the previous year
  • Subtract variable expenses and fixed expenses. These are the costs for materials, supplies and services used in the previous year. Don’t include capital activity (purchase of long term equipment, buildings or land with cash or loan payments)
  • How much money is left? (on the cash flow link below this is the line that says “receipts minus expenses at the bottom of page 1).

If you show a positive number at this point you can consider expansion and evaluate your ability to invest in business assets (capital activity) or draw out more income as the owner (this is page 2 on the cash flow).

If you calculate a negative number STOP! Expansion could make the financial situation worse. An extra 5 ewes held over from last years lambs or an extra .5 acre of vegetables might not help. Think about strategies to get your costs more in line with the income you generate. Expansion might resolve the problem but it is not a guarantee.

Download this simple cash flow PDF and complete it to the bottom of page 1. The line “receipts minus expenses” will indicate your operating margin and assist in decision making moving forward.

 

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Ireland – Recent Entrants Training

Last week I had the pleasure of bringing 3 colleagues from Ireland’s extension service around Vermont. I studied last year with James, Fintan and Kevin, financial management specialists, when I was on sabbatical study leave in Ireland.

James McDonnell and Kevin Connolly, Teagasc; learn about maple at Mary McCuaig's, S.Woodstock, VT.

James McDonnell and Kevin Connolly, Teagasc; learn about sugaring from Mary McCuaig, S.Woodstock, VT.

Not surprisingly, farm financial training was one of our topics of conversation. They told me about a 3 half-day training program, ‘Cash Plan 2014.’ It is specifically for farmers who started up since the beginning of 2008 (recent entrants), dairy farmers in particular. Teagasc (an organization similar to Land Grant colleges in the US) will begin offering this course in the fall of 2014, they have 900 farmers signed up for it now.

Farmers who successfully complete the program will receive up to €1,000 (about $1,300)! The course is ‘hands-on’ with spreadsheets to be used for farm financial recording on a monthly basis for 2014, and preparing a monthly budget for 2015. The third piece of the course is to complete a workbook, My Farm, My Plan (Teagasc) that guides a farmer through the thought process of writing a business plan.

The European Union’s Dairy Marketing Quota ends in the spring of 2015. The Irish government wants more milk (for the cash that it creates), dairy farming is one of the most profitable sectors of the ag economy there, and many dairy farmers are planning expansions. The goal of ‘Cash Plan 2014’ is to teach the use of financial tools, and to get farmers thinking about a plan for their expansion.

The Vermont New Farmer Project has a 3 half-day course in February, Intro to Ag Financial Management (alas-with no big grant money to encourage people to attend). Our plan, as of July 2014, is to offer it in Feb, 2015 in Rutland and Berlin. The course focuses on the 3 basic financial statements: Balance Sheet, Cash Flow, and Income Statement, and how you can use them to manage your farm.

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Ten Thoughts about Employees

Editor’s Note: This week’s post is from guest blogger Chris Blanchard, an organic farmer and farm consultant based in Iowa. Through Flying Rutabaga Works, Chris offers consulting to organic and small-scale farmers on effectiveness and productivity, marketing, business planning and development, post-harvest handling, food safety, greenhouse crop production, and more. 

  1. Happy employees are productive employees – and productive employees are happy employees.
  2. The right tools plus the right people equals maximum productivity.
  3. The boss sets the tone and sets an example.
  4. The boss is never tired. Even if she is.
  5. Be certain going in that what you say you want is what you really want. If you have a partner, discuss this with them.
  6. Some people are fast. Some are not. You probably can’t do much to make dramatic changes, so figure it out before you hire. After you hire, either find a way to deal with what you’ve got, or change what you’ve got. Only two choices.
  7. Be clear about goals and be clear about standards- and make those standards quantifiable. 50 bunches per hour. No more than 3 cercospora leaf spots on a Swiss chard leaf.
  8. Be certain. Don’t tell people to “do their best”… describe best. Don’t make a big deal about changes in procedures- it makes even good employees think they know as much as you.
  9. Poor performance by one employee drags management and labor down.
  10. If you have a partner, be certain you agree on goals and procedures. Anything else encourages dissent and confusion.

Learn more about Chris and check out his blog at Flying Rutabaga Works website.

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Drip Irrigation Resources

?????????????????Drip irrigation systems can save enormous amounts of water, thereby reducing wear and tear on pumping components and reducing energy inputs and cost.  This article from Penn State Extension points to potential water savings of 50% compared to overhead sprinkler systems, and covers other pros and cons of drip.

Here is another good comprehensive resource on drip irrigation principles, components, design and layout and maintenence that UVM Center for Sustainable Agriculture Farming and Climate Change coordinator Joshua Faulkner shared at a recent irrigation workshop in Southern Vermont:  Drip irrigation systems for small conventional vegetable farms and organic vegetable farms .

Another free comprehensive online resource on drip I’ve found to be informative is: Irrigation Tutorials .

For further technical assistance and information on the topic of irrigation design and optimization, please contact:

Joshua Faulkner, UVM Extension Center for Sustainable Agriculture Farming and Climate Change coordinator, (802) 656-3495, joshua.faulkner@uvm.edu,

Ben Waterman, UVM Extension Center for Sustainable Agriculture Land Access and Resource Assessment specialist, (802) 656-9142, ben.waterman@uvm.edu, or

Chris Callahan, UVM Extension Agricultural Engineer (802)773-3349 ext. 277, chris.callahan@uvm.edu ,

 

 

 

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Soils Influence Purchase of Development Rights

Development rights are one of the rights in the ‘bundle of rights’ that we have when we own a parcel of land. Selling the development rights is a way to bring down the cost of land to a buyer, like a new farmer. The owner would sell the development rights to an organization like the Vermont Land Trust, and then sell the land to a new farmer. The owner would receive the fair market value of the land from 2 sources, (VT Land Trust and the new farmer) and the new farmer would pay a lower price for the land.

The Vermont Housing and Conservation Board (VHCB) is in charge of using money from the State of Vermont to help fund the purchase of development rights. In 2013, Vermont invested $2.7 million in the purchase of development rights from farms. This money leveraged another $4 million from USDA and NRCS.

The VHCB information page on Vermont’s Farmland Conservation Program states that the demand by farmers to sell development rights outstrips the supply of cash to buy the rights. So, VHCB has criteria that they use to rank proposals. The main criterion is soils. (That makes sense, the soils are going to be there long after you and I are here.) DSC01769Soils in different proposals are ranked by the percentage of soil in the proposal that is scored as either Prime Ag Soil, or Soil of Statewide Significance. You can learn more about soils and see a map of soil types in Vermont on the Agency of Natural Resources online Natural Resources Atlas.  Learn more about this tool in our previous blog post about the Atlas.  Scroll to the bottom of the info page for the VHCB Policy for the Conservation of Ag Land publication and the selection criterion.

For more information on development rights, Nancy Everhart, neverhart@vhcb.org, the Ag Director at VHCB would be a good person to talk to, 802-828-5066802-828-5066.
For more information download the Farmland Classification Systems for Vermont Soils, NRCS publication.

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