How much cash do you want your farm to provide for your family living needs?
I have seen 3 different answers to this question. All, none, and somewhere in between. (And a fourth.)
All. Some farm families have a farm that is profitable enough and large enough to provide all the cash that the family needs to live. Neither spouse nor any of the partners work off the farm. The farm is the sole source of cash for the family.
None. Many farm families have a spouse or a partner that works off the farm. Many families have an unwritten rule, “my off-farm job will provide cash family living needs and as long as the farm can pay for itself, the farm does not have to provide cash for the family.” I have heard families say this. Usually the farm will provide some food, lots of times wood for heat, a place to live, and the farm gives meaning to people’s lives. In years when the farm does not show a profit (like dairies in 2009) the non-farm income is used to help pay farm expenses.
Somewhere in Between. Then there are the farm families that use cash from the farm and from the non-farm income for family living needs. Quite often the non-farm job does not provide a lot of cash but it does provide health insurance for the family.
The 4th answer. There are quite a few farms that do not ‘pay for themselves.’ The farm uses money from the non-farm job to pay farm expenses. This can be a slippery slope. I see this in start-up farms, hobby-farms, and in unprofitable farms. Eventually the family has to take an honest look and decide if they can afford to keep putting cash into the farm.
Which situation is your farm in? Do you know? Have you ‘run the number?’ Where do you want to be? Do you have a plan to get there? How long will it take to get there?
I have tried drawing pictures to describe this.
We start with three places on the farm. The farm is on the left, with the picture of an animal and a plant. The kitchen table is on the right; it represents all family living needs. And the dooryard is in the middle, in between the farm and kitchen table.
In the last case, the farm is not providing enough cash to pay for itself. So non-farm income must cross the dooryard to support the farm. Usually I see this in start-ups and hobby farms. Sometimes I see this in nightmares, where the farm is not profitable, and is using all cash in sight, plus borrowing money.
Which situation are you in now? Where do you want to be?