How to Build a Profitable Farm Business

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Here are Some Tips on How to Build a Profitable Farm Business

In this day and age, it’s often difficult to build a sustainable business from farming. Those that do, however, understand that there’s far more to operating a farm than simply preparing the land, planting seedlings, harvesting, and taking the produce to the market. These people run their farm as a business and make decisions based on viability and their ability to turn a profit. Here are some tips for making  your farm more profitable:

1. Business Planning

A well thought out business plan is central to any new enterprise, and farms are no exception. The business planning process helps to understand who we are, what we want to do, the steps we need to take in order to get there, and the tools we need to engage in that process. A business plan is like a road map to farm success, and is essential for anyone who wants to build a profitable farm business.

Business plans can also be essential for securing the necessary financing to fund farmland, farm infrastructure, and machinery costs. Lenders often ask to see a business plan before even considering a loan application.

2. Market Research

One common mistake some farmers make is planting crops without first conducting adequate market research. They simply assume there will always be a market for their produce. Others go with what they see their neighbors doing. They plant the same crops as those around them because they believe that’s what’s going to sell.

The problem with such a move is that the market becomes saturated with one type of product, forcing farmers to compete by lowering their prices. If you want to succeed in farming, you need to find products that you can sell easily for the price you need to be profitable.

Building relationships with customers before planning your crop is critically important. Likewise, keeping a record of what does and doesn’t sell, and understanding the profitability of each crop are critical for anyone who wants to build a profitable farm business.

3. Choosing the Right Crop

There are many factors to consider when choosing a cropping plan for your farm. Some of these are biological, some are ecological, and some have to do with the knowledge and equipment required for successful production.

Many small farmers start with fast growing annual plants and then scale up to more complex perennial systems. Understanding what grows well in your climate and soil is essential, and can often involve a process of trial and error. Your marketing strategy will also affect the crop choices you make.

Using enterprise budgets to understand the profitability of each crop you grow can be an invaluable tool in helping to choose the crops that are the best fit for your farm. Enterprise budgeting is also extremely important for the business planning process, and can help you to secure the capital you need to build a profitable farm business.

4. Start Small

Land and machinery represent large upfront costs that can be daunting and difficult to justify. Often, loans or financing are required to put up the capital before profits start coming in.

If you don’t have the liquid cash, make sure to consult a financial advisor to help understand a realistic loan amount that will not drown you in debt. Many successful beginning farmers try to avoid debt as much as possible in the years before their farm becomes profitable.

Starting small and scaling up is not often the impulse for new farmers, but it can be extremely useful in helping to avoid big mistakes. Pilot projects help us to understand what we are good at, what we need to avoid, and what we need to learn before we go big.

5. Diversification

Just like a stock portfolio, it is often helpful to diversify the type of crops that you grow on your farm. Diversification is especially important should your main crop require time to mature.

Planting a variety of crops is like an insurance plan that hedges against catastrophic failure. If one crop us unsuccessful, there are likely to be many others that are successful. This can also be a way to find out what you are good at growing, what you like to grow, which crops are easiest to market, and which crops are the most profitable.

6. Documentation

Good documentation is the key to understanding what is and isn’t working for you, and improving your operation year after year. You’ll need to keep a record of all of your production practices so that you can avoid making the same mistakes over and over again. Farming is complicated and tasks shift constantly, so don’t make the mistake of assume that you will always remember in the future what you have done in the past.

Financial documentation of revenues and expenses is also critical to understanding how to build farm profitability. Documenting your transactions will help you find inefficiencies that cut into your profit margin.

7. Knowledge is Power

In order to build a profitable farm business, you need to be curious and have the desire to learn more about your industry and take the necessary steps to do so. Conferences, newsletters, books, magazines, and other resources can be invaluable tools for helping you to build your knowledge and keep up with the latest research and techniques.

Building relationships with other farmers is also useful. Learning from those who have already been successful in doing what you want to do tends to be the best way to avoid mistakes and find success in this business.

 

• Learn more about starting a new farm business at https://www.beginningfarmers.org/planning-a-new-farm/