When starting an agricultural business one of your first decisions should be, what am I passionate about? This decision is critical to the success of your business.
When starting an agricultural business one of your first decisions should be, what am I passionate about? This decision is critical to the success of your business. If you do not have the passion for the business or industry, it will become a job and not your vocation.
Any business requires long hours, time away from family, and becoming a "jack of all trades." If you are a sole proprietorship (how most businesses are started), you will be the producer, marketer, and business manager. You should view the operation as a business and not a "way of life." If you are planning to make a living from the operation, the business portion should be the top priority. Many new entrepreneurs view the production and marketing the most important portions however; without a business focus, the operation may not be set up for the long term.
There are several web sites that can assist with this overview of your business. The National Ag Law Center based in the University of Arkansas has two sites that will help you in this process. They are Part 1: An Overview of Organizational and Ownership Options Available to Agricultural Enterprises and Part II: An Overview of Organizational and Ownership Options Available to Agricultural Enterprises.
The Pennsylvania Department of Revenue has an excellent start-up guide titled Starting a Business in Pennsylvania. Penn State Extension has a resource titled Family Farm Business and Financial Flow Chartthat will highlight inclusion of the farm family in the business.
The Small Business Development Centers (SBDC) will provide a limited amount of free assistance for people starting businesses. The SBDCs provide consultants to assist Pennsylvania residents in many business aspects. They have two web sites that you may find very helpful. These two web sites are, PA SBDC: Agribusiness Assistance and PA SBDC: Starting a Business Checklist.
There are eighteen SBDCs throughout Pennsylvania and are based in Universities.
Penn State Extension has a publication series titled Agricultural Alternatives that covers many agricultural enterprises that beginning farmers may be considering. Each publication includes information covering marketing, production practices, risk management suggestions, and an environmental impacts section. All print copies dealing with production of a product have budgets you can use to create your own projected budget. The series also includes publications dealing with business, marketing, and risk management topics.
Links to these publications are included on the web pages for each publication. Included in the web pages are links to PDF budgets that you can use to electronically create and print your budgets. Several of the web pages also include recorded videos of producers describing the benefits and drawbacks of the enterprise and their marketing strategies and other marketing options for the enterprise.
For business start-ups the publication or web page you should consider is Starting or Diversifying an Agricultural Business.
Taking the time to develop a business plan will provide direction to your business in the future and may assist the owner when seeking funding.
Creating a Business Plan
The first thing you should do is create a business plan for the operation. The business plan will help you focus on all aspects of the business and plan for future expansion and transition from the business. You will also create a marketing plan and a risk management plan. Even if you are not borrowing any start-up capital, a business plan will be a guide for your future. If you plan to borrow start-up capital, the business plan will provide your potential lender with your view of how the business will operate and how all funds will be used. You will create pro-forma budgets for the first three (or more) years of the business. When creating these budgets, create best case and worst case scenarios to show the reader that you are considering all options and how you will face the possible worst case scenarios. This exercise will take time but, it will be time well spent. Most businesses fail within the first five years however; the percentages are much lower for those start-ups with a business plan.
There are many resources to assist with start-up and business planning. Penn State Extension has a website for those starting a new business that includes many links that will be of assistance.
Penn State Extension also has an online, ten-session, webinar-based program titled Your Future in Focus. You can work at your own pace throughout the program and receive instructor review of your plan during creation. The program uses an online tool from the University of Minnesota titled AgPlan. During the course, you can work on your plan and have the instructors' review and offer comments for your plan.
The Pennsylvania Small Business Development Center (PASBDC) has several sites that will provide assistance for beginning businesses. The first includes 9 Steps to Starting a Business, the second is an Online Tutorial for Starting a Business, and the third is the SBA Small Business Planner. The SBA Small Business Planner will also help you establish your business.
Another organization that provides business assistance is the Service Core of Retired Executives (SCORE). SCORE provides individualized assistance from executives that have been in the business environment and have a wealth of knowledge to impart on new businesses. They have Online Workshops to help you begin your business.
When entering the business most owners are not considering an exit strategy however; you need to consider how long the business will operate and what will happen at the end. These thoughts should be included in your business plan and will impact your vision and mission statements. These thoughts may impact your choice of business structure also.
An Agricultural Alternatives publication and web page to assist with business planning is Developing a Business Plan.
Conducting a S.W.O.T. Analysis
A good practice when developing your business plan is to conduct a Strengths, Weaknesses, Opportunities, and Threats (S.W.O.T.) analysis. The S.W.O.T. analysis should be conducted with your family, business team, and employees, if there are any at this time. Your family should have input because they will need to support the business from the beginning. Your business team should consist of your attorney, accountant, insurance provider, and mentor. Your attorney will have valuable input regarding how your business will deal with risk and possible business structure. Your accountant can provide valuable information covering record keeping and financial issues. Your insurance provider should know all aspects of your business, including marketing, to be sure they can provide adequate insurance coverage. If you have a mentor, they should be involved to provide an overview of issues that others may not consider. A tool to create a S.W.O.T analysis can be found in a United States Department of Agriculture (USDA), Risk Management Agency (RMA) document titled Conducting a S.W.O.T. Analysis.
Vision and Mission Statements
The results of your S.W.O.T. analysis will provide the information you will need to develop your goals and objectives for your business plan. Also included in your business plan will be your mission and vision statements. These statements should be the guiding factors of your business. Penn State has information within Agribusiness Planning: Providing Direction for Agricultural Firms. Another site with valuable information covering these statements is, The Basics of Developing Mission, Vision, and Values Statements.
Your business structure can have many impacts in the future of your business. Your business structure can provide risk management protection, as well as, a tool for passing the farm to the next generation.
Your business structure can have many impacts in the future of your business. Your business structure can provide risk management protection, as well as a tool for passing the farm to the next generation. The business structure can add a level of protection against liability issues thus protecting your personal assets. You need to be sure to not co-mingle your personal assets with business assets. If you use any personal assets as collateral for a business loan, you have just eliminated this protection.
Your business structure may be one of the tools used during succession planning. Having a structure that provides for others to "buy in" to the business can help in the planning process. The primary owner may choose to begin selling portions or shares of the business to others who wish to transition into the ownership of the business. This allows the owner to "bow out" gracefully and have a clean transition process. The Business Structure Matrix web site outlines a concise table illustrating different business structures and their attributes.
The majority of agricultural businesses begin as sole proprietorships. This is because most businesses start small and expand over the years or generations. This is an acceptable form of structure for beginning farmers if you are selling your products on the wholesale market. You also need to realize that you are the business and the business is you. This means that whatever happens to or within the business, you are responsible. If you are direct marketing, a more complicated structure should be considered to protect your personal assets. If considering a more complex business structure, do not include any personal assets within the structure as this will "pierce the corporate vale" and your personal assets will no longer be protected.
How you name your business will dictate if you need to file for a Fictitious Name. If the business contains your sur-name, for example, Smith's Farm, you do not need to file for a fictitious name. However, if your business is named Swampy Rock Farm, you will need to file for the fictitious name as there is no sur-name included. You can begin then process online but you will need to advertise in local newspapers informing readers that you will be operating a business under a different name than your own. This should be completed prior to opening any bank accounts if possible.
Registering your business can be accomplished online. A sole proprietorship or partnership will not need to be registered however, any structures more involved than these (LLC, LLP, S Corp, or C Corp) will need to register with the Commonwealth of Pennsylvania. The PA Department of State is where these forms can be found. The form for application for a fictitious name can also be found at this site.
Partnerships may entered into by two or more parties. There are no formal documents to be filed (unless using a fictitious name) however, it is strongly recommended that an agreement be in writing. Having everything in writing helps eliminate the parties remembering agreements differently. You may be friends or relatives when entering the partnership so having everything in writing will help keep those friendships and family relationships intact. More information covering partnerships may be found Cornell University Law School website.
Limited Liability Companies
Limited Liability Companies (LLC) are fast becoming the business structure of choice for many operations. They are easy to start and they provide several methods for filing income taxes. They also provide protection against the owner(s) personal liability. To find the definition of an LLC, see Legal Zoom website. The LLC will need to be registered with the Commonwealth and the forms can be found on the PA Department of State web site.
Corporations are named for the sub-chapters in the tax code. An S-Corp is named for the sub-chapter S in the tax code and a C-Corp is named for the sub-chapter C in the tax code. Agricultural businesses may consider both forms of corporations but you should rely on the advice of your attorney and accountant before entering into a corporation.
Corporations have many requirements governing annual meetings, stockholders (including who can be a stockholder), and filing of taxes. There are advantages and disadvantages to both forms which is why consultations with professionals is recommended. More information on the forms needed can be found under the PA Department of State web site and the PA Department of State Corporation Bureau.
Cooperatives are usually established to assist members with purchasing supplies, marketing their products, and to have a greater influence in the industry. Cooperatives are usually operated through a Board of Directors with input from the membership. Members usually have a vote as to who is on the Board and some cooperatives determine the value of the member's vote on the amount of shares held. An Agricultural Alternatives publication and web page is Cooperatives. For an introduction to cooperatives, view the USDA publication called "Co-ops 101: An Introduction to Cooperatives".
You will usually need to purchase shares in the cooperative and these share purchases may be based on volume of product sold or purchased or a set price per share. There are many ways to be a member of a cooperative. In some cooperatives, you may be a voting member or, in the case of purchasing or marketing cooperatives, you may pay just to be able to purchase or market your product. For more information on cooperative principals see the eXtension article on "Basic Cooperative Principles".
A few new and beginning farmers may have intellectual property that require a trademark. If you fall into this category, information covering trademarks can be found on the Us Patent and Trademark Office website.
When seeking financing, there are several steps you should take before approaching and funding source.
One of the first things you should do is obtain your credit score. A healthy credit score will be a benefit when obtaining financing as this is one of the first things most lenders will look at. If there are any discrepancies in the score, try to have them resolved before approaching a lender for a loan. There are several options for financing your farm. These options are:
- Credit cards
- Friends, relatives and crowd funding
- Commercial lending institutions
If you have the funds to self-finance, this may be your best option. You will need to consider that you will also need living expenses while you are beginning your business. It is easier to obtain funding for the farm than for family living expenses. If you have off-farm income to cover the living expenses and savings to cover the farm expenses, this may work well for you.
You might consider using personal credit cards to finance the family living expenses however; keep in mind that these will carry a higher interest rate than most other options. If you plan to use credit cards, you should be able to pay off the balance, or at the least, most of the charges each month. Many small businesses are started using credit cards but will then graduate to a more conventional means of funding.
Friends and Relatives
If you have friends or relatives willing to finance your operation, make sure all of the details are in writing. Approaching this funding source like a commercial loan will eliminate misunderstandings that may strain friendships and family relations for years to come. Always offer to pay interest to your lender and spell out the terms of the loan.
There are some crowd funding sources that are interested in funding small-scale and beginning farms. Keep in mind that your credit score may enter into the possibility for this source. Research all of the terms prior to setting up the crowd funding so there are no surprises in the future.
Approaching a Lender
When approaching a lender to discuss financing your operation, there are several things to consider. Your credit score is number one. The second this is, do you have a previous relationship with the lender? Approaching a familiar face is always easier than someone you do not know. The third is, does the lending institution have agricultural loans? If the lender is not familiar with the type of operation you are proposing, it is much easier for them to decline the application. Try to choose an institution that is familiar with agriculture and knows the cycles of production of your crops.
If you would like to calculate the payments for your mortgage or loan, the Farm Risk Plans web site has a payment calculator you can use for this purpose. For those who have never applied for a business loan, a web site titled; Five Things You Can Do to Increase Your Chances of Getting a Business Loan is a good place to begin. An Agricultural Alternatives publication titled Financing Small-scale and Part-time Farmsis a good source of information.
Most beginning farms (and large farms) do not have a Data Universal Numbering System (DUNS) number. The DUNS number is usually used for obtaining Federal grants so this may be something to consider for beginning farmers.
As previously stated, finding a lender who understands your operation increases your chances of obtaining funding. Remember, your credit score is critical and relationships with lenders is key.
The Farm Credit system is a member-directed organization that requires the borrower to purchase stock in the organization making the borrower a stockholder in the organization and eligible for dividends based on the amount borrowed.
The USDA Farm Service Agency has micro-loans up to $50,000 which may be used for start-up expenses, including land. They also have other programs for any size operations.
A partial listing of lenders is:
Many beginning farmers want to know where to find grants to help them with start-up costs. There are very few grants for this purpose, regardless of what you may see on late-night television. There may be grants on the books however, there needs to be funding to support these grants and they are rarely funded. There are some that you can apply for but you should have your business plan written because the funding source will ask for the information most commonly included in your business plan.
For grants that may fund production practices, the Northeast Sustainable Agricultural Research and Education (NESARE) may be a source to consider. You will need to devise a unique production method and be willing to share the information with other producers. Their web site will contain all details and deadlines for applications.
The United States Department of Agriculture (USDA) has a grant program titled the Beginning Farmer Rancher Program. These grants are traditionally applied for by Universities or non-profit organizations. However, one of the requirements of the grant is to have producer input for the project. This input may be direct input, you have a say, and possibly some funds, or indirect input. The in-direct input would come from you attending a training and completing the evaluation form at the end of the program.
The Natural Resources and Conservation Service has several programs that may be considered grants. However, most of the funding is in the form of reimbursement funds. You must pay the costs then submit the invoices to be reimbursed. The Conservation Innovation Grants were established to promote information technologies. Another opportunity is the Conservation and Development Program that target practices to promote air, soil, and water conservation projects.
The PA Grows program through the Pennsylvania Department of Agriculture has a listing of some of the grants mentioned above and additional programs through their initiative. Please review all of the information to see if you may qualify.
The Rural Energy for America Program (REAP) deals with alternative energy sources and energy conservation projects.
If you are seeking funding for a value-added enterprise, the USDA has Value-Added Producer Grants available. These grants are in two parts, the first is for a feasibility study to explore the details of the business and these are the easiest to obtain. The second part is for starting the enterprise and come with specific details of what can be funded. Please research all details before applying for these grants. The Center for Rural Affairs has some introductory information you should review.
No matter the size of your farm business, you will need to abide by the laws and regulations that govern your operation.
As anyone in business will quickly point out, there are many laws and regulations you will need to follow to stay in business. Not knowing what laws and regulations impact your business is not a defense with the enforcement authority.
If you have not viewed the Pennsylvania (PA) Department of Revenue's web site on starting a business in PA, it is a good place to find information regarding laws that you should know when starting your business. Your County Extension Office is another place to find information.
Dealing With Taxes
Whether you are making a profit or not, you will still need to file tax returns. These will be Federal, State, and local taxes. Failure to file taxes, means you are not a business but are engaging in a hobby. Also, failure to file taxes may mean a premature end to your business. For information regarding Federal income taxes, please see Understanding Your Federal Farm Income Taxes. Another resource you should become familiar with is the Internal Revenue Service (IRS) Publication 225: Farmer's Tax Guide.
If you are planning to establish a corporation, the IRS has information regarding taxes impacting corporations. Corporations are categorized in two possible structures C-corporations and S-corporations with each having different tax requirements.
In PA, there are several sites that contain useful information to view. The PA Department of Revenue has information regarding the types of taxes that may impact your business. Tax forms and publications can be found on the Department of Revenue's website. You should also check if you will need to collect sales tax. Currently, selling produce or products that are not pre-prepared (such as sides or quarters of an animal), you do not need to collect sales taxes. Value-added products may be taxable so check PA Department of Revenue's website to determine if what you are producing falls under the sales tax requirements.
Local taxes mostly fall under property taxes. In PA, the Clean and Green laws may impact your property taxes. This program is designed to lower your property taxes if you are engaged in agricultural production. There are acreage requirements but you may still qualify if you produce an income over a specified amount for that acreage. Contact your County tax office to see if they participate in the program and determine the requirements for enrollment.
When you begin employing workers, you fall under another level of laws and regulations. Some people have heard that if you hire someone as an independent contractor, you do not fall under the employee withholding requirements. This may or may not be true. There are guidelines that dictate if a person is an employee or independent contractor. To make this determination, the IRS has a list of requirements to help you decide. When hiring an employee, they will need to complete an IRS Form W-4 to determine tax withholding amounts and an USCIS Form I-9 to determine employment eligibility.
One of the first things you should do before employing workers is to file for an Employer Identification Number (EIN). The form for filing is the IRS Form SS-4. This number makes the determination that you are a business and you will need to use the EIN on withholding forms and, in PA, may be used on forms filed with agricultural suppliers so you do not need to pay sales tax on your inputs.
The IRS Publication 51: Agricultural Employer's Tax Guide will help you know the requirements you need to follow. There are several forms you will need to file and use for Federal and State tax withholdings. The IRS Form SS-8 covers the determination of worker status for the purposes of Federal employment taxes and withholding Federal income taxes.
A form you will need to file quarterly is the IRS Form 941: Employer's Quarterly Federal Tax Return. A Federal form that you will need to file annually is the IRS Form 940: Employer's Annual Federal Unemployment (FUTA) Tax Return and another annual form is the IRS Form 943: Employer's Annual Federal Tax Return for Agricultural Employees. At the end of the year, you will need to provide employees with an IRS Form W-2 Wage and Tax Statement. Not following the regulations for submitting taxes you withheld from employees has been the downfall of many businesses. It is critical you follow these regulations and adhere to the dates for submitting these withholdings. Your accountant can assist with more information regarding filing these forms.
Worker's compensation is an insurance and not a tax however; when employing workers it is something you will need. Worker's compensation insurance covers employees if they are injured on the job. You can self-insure but you will need to prove to the PA Department of Labor and Industry that you have the necessary assets to do so.
Worker's compensation insurance rates are based on the amount of payroll you have and the tasks performed by your employees. The employee that operates equipment will have a higher rate than the office staff person. The employer is not covered under worker's compensation insurance.
Employing migrant workers entails another level of record keeping and requirements. The Immigration and Labor Handbook contains a wealth of information you should view. Another source of information is from the U.S. Department of Labor which includes the laws you will need to follow and how to comply with those laws.
If you have over a specified number of employees, the Environmental Protection Agency (EPA) has the Safe Drinking Water Act (SDWA) that will impact your business. You will need to provide field sanitation facilities and potable drinking water for your employees. Even if you do not employ the specified number of employees, you should provide these facilities and drinking water as a common courtesy for all employees. This will also impact the Good Agricultural Practices guidelines that will be discussed later.
If your operation uses pesticides, the Federal Insecticide, Fungicide, and Rodenticide Act will impact you. Even some organic pesticides may fall under this Act so you should view the information to be sure. Another law impacting the application of pesticides is the Worker Protection Standards for Agricultural Pesticides. These standards pertain to owners and employees alike. You will be required to keep accurate records of pesticide applications and weather conditions during applications. They also govern pesticide safety and storage.
The Natural Resources and Conservation Service (NRCS) has information regarding soil erosion and other programs that may greatly benefit start-up agricultural businesses. They have two sources of information which are: the NRCS Electronic Field Office Technical Guide and NRCS Field Office Technical Guide. You should view both of these sources for more information. For an overview of information covering Federal laws, see the Penn State Ag Law Center's information.
Nutrient Management Regulations
If you plan to raise animals, you may fall under the Nutrient Management Legislation in Pennsylvania. If you are not raising livestock but apply manure or fertilizers, these regulations will still impact you. Penn State has information covering the Nutrient Management Legislation in PA. An additional source of information is available from Penn State is a Summary of Act 38 of 2005. NRCS has a Nutrient Management Job Sheet for you to use to determine what you may need to do to comply.
In Pennsylvania, the lowest form of government is the township and may have the most impact on your business. Before beginning any type of production, contact your township and see if they have zoning laws and how they may determine if your plans are viable. If your property is zoned for agricultural use, you may not be able to include a value-added or agritainment component to your operation. The Small Business Development Center has information regarding basic zoning laws.
Many new and beginning farmers are interested in organic production. It is recommended that you become certified if you are producing organically otherwise, you can say that you do but you cannot prove that you follow the organic guidelines unless you supply all of your production records to anyone who asks. You do not want to create doubt in your customers. PA has an organic certifier in Pennsylvania Certified Organic. You are not required to have your production certified by someone in your state so a Listing of Organic Certifiers can be found within the link provided.
Good Agricultural/Good Handling Practices (GAP/GHP)
Good agricultural practices (GAP) and good handling practices (GHP) are voluntary programs that you may wish to consider for your operation. The idea behind these programs is to ensure a safer food system by reducing the chances for food-borne illnesses resulting from contaminated products reaching consumers. Also, several major food distribution chains are beginning to require GAP- and GHP-certified products from their producers. These programs set standards for worker hygiene, use of manure, and water supply quality.
These practices require an inspection from a designated third party and there are fees associated with the inspection. Prior to an inspection, you will need to develop and implement a food safety plan and designate someone in your operation to oversee this plan. You will need to have any water supply used by your workers or for crop irrigation and pesticide application checked at least twice each year. A checklist of the questions to be asked during the inspection can be found at the Agricultural Marketing Service. For more information about GAP and GHP, contact your local extension office or your state's department of agriculture.
Additional sources of information may be found at the Penn State Food Safety web site which also contains assistance with creating Food Safety Plans. If you are planning adding value to your production, you should view the Pennsylvania Food Code and Hazard Analysis and Critical Control Points (HACCP) guidelines.
When you enter into agricultural production, you may have farm vehicles that may need to run from field-to-field or farm-to-farm on public roads. If you are operating farm equipment (tractor(s)) on a paved road, make sure you have slow-moving vehicle signs prominently displayed and use seat belts, if available. Another suggestion is to turn all lights and flashers on to help vehicles see you in plenty of time to slow down. Never carry anyone on a tractor, especially on public roads (tractors only have one seat). Tractor safety should be a major concern.
You may also have trucks or other vehicles that traditionally have license plates. If you are engaged in production agriculture, you may fall under some special provisions for vehicle registration. The Pennsylvania Farm Bureau has a web site containing Commonly Asked Ag Transportation Questions you should view. The Penn State Ag Law Center also has a document that provides information. After you have viewed these information sources, The Pennsylvania Department of Transportation provides information on Farm Equipment Requirements. If you follow these sources, you should be able to make decisions about your vehicles and know which laws and regulations pertain to you.
Budgets are the first step in providing adequate financing for your operation. Without accurate records and budgets, seeking finances for your farm will be more difficult.
Financial projections and budgeting
Budgeting should be an integral part of your business. You should create pro-forma (projected), and actual enterprise budgets each year. By constructing pro-forma budgets, you will have better information when ordering supplies and projecting income from each enterprise. If you have been in business for at least a year, you will have much more accurate information to create your pro-forma budgets. If you have never produced the crop you are considering, the Agricultural Alternatives publications and web page series contain budgets you can adapt for your operation. The web page versions contain links to interactive PDF budgets for you to enter your information and create and print your budget.
Good record keeping is imperative to business success and these records will assist with creating the budgets used for financial projections. Record keeping is in play when making financial, production, and marketing projections. When making financial decisions and projections, what happened in the past may greatly impact future decisions. Why is there not as much money left at the end of the year as you thought? Also, production decisions and projects will benefit by the information contained in your records. Why was production not high enough to serve all of your markets? Basing marketing decisions on historical information is invaluable. What sold well and when, what did not sell and why?
The Internal Revenue Service: Starting a Business and Keeping Records contains information you will find useful for filing your income taxes. By following this information, you should have everything within your record keeping system to assist you or your accountant to accurately complete your income tax forms.
Record keeping is a form of risk management. As previously mentioned, historical information will assist in determining your insurance needs, assisting in filing a crop insurance claim, and being able to create accurate budget information. You should set aside a portion of each week to keep records up-to-date.
When creating end-of-year enterprise budgets, you may use the same tools as mentioned above. These budgets should be much more accurate as you have produced the crop or livestock and you should have actual figures to enter into the budget. This process will help determine if the enterprise was profitable or at least, contributed to the fixed costs of the business. For more information covering budgeting, please see Budgeting for Agricultural Decision Making.
Another budget you may find useful is a partial budget. A partial budget measures the success of a proposed change in production practices. For example, is no-till crop production more profitable than conventional-till production? You will need to list the benefits of fewer trips across the field against the possible decrease in yield. This budget process is explained in greater detail in the publication mentioned above.
When you have created your year-end budgets, you can use this information to create your cash flow statement which is the first step in creating your additional financial statements. You, or your accountant, should create an income statement and balance sheet for your operation each year, usually dated the last day of your fiscal year. For information covering your financials, please see; Farm Risk Plans: Understanding Your Financials. Also the Penn State Extension Farm Management Team's web site has substantial information covering financial management.
When you have created your financial statements, you should use the information to calculate your ratios. There are 16 financial ratios (commonly referred to as ("The Sweet 16") that you should use to measure your business' success or progress. These ratios are used to benchmark one year against another.
There are published benchmarks for many commodities however, the best benchmarks are internal. This allows you to measure your progress and financial institutions may use these ratios to determine the financial health of your business. You can also use the financial information to create your financial forecasts. These forecasts will assist in setting your yearly goals and objectives for your business. The Agricultural Marketing Resource Center has information to assist with these forecasts.
There are many resources to find current pricing for commodity crops (corn, soybeans, wheat, etc.), finding current prices for vegetable and fruit crops may be more challenging. However, there are several trusted sources of accurate pricing for all crops and most livestock enterprises. The National Agricultural Statistics Service (NASS) reports information from the most current Census of Agriculture reports more information on almost all crops.
NASS also reports information specific to Pennsylvania (PA). The Pennsylvania farm Bureau also reports pricing information for some crops produced in PA. These prices may be used to set your selling price or for making financial projections. When determining you selling price, your cost of production should be the best source of information. However when making projections, these sources will be useful.
All agricultural operations have several forms of risk. The United States Department of Agriculture's Risk Management Agency (USDA-RMA) lists the five areas of risk as:
- Production Risk
- Marketing Risk
- Financial Risk
- Human Risk
- Legal Risk
All operations face these areas of risk no matter how large or small.
To see an overview of these areas of risk, see An Introduction to Risk in Agriculture and Penn State's Risk Management information. For a more detailed assessment of these risks see USDA's Farm Risk Plans.
Insurance is the most recognized method of risk management however, this is just one tool in your risk management tool box. For information covering many of the insurance tools available please see Agricultural Business Insurance. Also, within the Farm Risk Plans web site is information covering insurance products available to agricultural producers. You can also find the Risk Management Checklist at this site. This checklist is an important tool to determine where your risk management plan may be lacking.
If you own or lease agricultural land, the Understanding Agricultural Liabilitywill inform you of the levels of liability you are responsible for depending on the status of the person entering your property.
When producing crops, a tool for insuring these crops is crop insurance. Crop insurance is a complex program and some crops produced in PA do not have specific programs. For information covering the crop insurance programs in PA, please see Penn State's Crop Insurance web site for detailed information. For those crops not covered under a program, the Farm Service Agency has a program titled the Non-insured Crop Disaster Assistance Program (NAP). You will need to visit your local Farm Service Agency office and inquire about sign-up deadlines and crops covered under the program.
No matter what enterprise(s) you choose, land in an integral part of your farm business.
Many operations do not own the necessary land to produce enough crops supply their markets or feed their livestock. Many start-up operations do not own any land but rent or lease their land. It may be very difficult for beginning producers to find suitable land to begin production. There are several incubator farms in Pennsylvania that lease small amounts of land to new and beginning farmers to "test the waters' to see if agricultural production is for them. There are at least two organizations that assist new farmers to connect existing farmers who may have land for rent or sale. These two organizations are, the PA Farm Link Program and Land and Farm.
The Owning and Leasing Agricultural Real Estateis a good reference for things to consider when searching for land. Ag Lease 101 contains sample rental and lease agreements you may use when approaching a potential landlord. The site also contains substantial information to consider when deciding on the terms and structure of renting or leasing land.
There are several legal issues to consider when renting or leasing land. Several things you need to negotiate are; who provides insurances, start and end dates, and crop share or cash lease, among others. For information covering some of the legal aspects of renting or leasing land, please see Farm Risk Plans: Legal Risk.
If you plan to purchase land The Pennsylvania Association of Realtors site contains a listing of realtors belonging to the Association. Your local realtor may know of land for rent or lease.
Conditions and suitability
Whether you decide to own or rent land, one of the first items you should check is to see if the land is suitable to your production needs. If you plan to produce vegetable crops, does the land have too much slope? If you plan to produce livestock, is there enough pasture available? You should determine the soil structure and type when considering your land needs. The Natural Resource and Conservation Service (NRCS) Web Soil Survey is an excellent place to begin. You may also obtain soil maps for your proposed area from the County NRCS office or your local Extension Office. Penn State has a Spatial Data Access site that will also be useful.
To determine if you have sufficient average rainfall for your proposed operation, see the National Weather Service site. If you do not have enough average rainfall, you may need to add irrigation costs to your proposed budgets.
If you are planning to produce organically, you should ask what production practices were followed in the past. You may need to produce organically for three years before you can become certified. Whatever land you are considering, conduct research into this land as it will determine many aspects of your business.