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Annotated Budgeting Resource List for Farmers

Annotated Budgeting Resource List for Farmers (Excerpt)

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Last updated: October 3, 2023

Authors: Jonell Michael

Tags: Profitability Pricing Selling

From Finances & the Future of Growing Food:  An Annotated Budgeting Resource List for Farmers.

Introduction #

The Importance of Budgeting & Recordkeeping #

In our contemporary era, there are many elements working against the small farmer. It is a commonly held misconception that one cannot make money by farming organically on a smaller scale, and this simply is not true. With a bit of know-how, it becomes easy to increase the profitability of one’s agricultural business. Budgeting is undoubtedly one of the keys to financial success. Without this means of keeping track of and allocating funds and resources in an efficient manner, it becomes nearly impossible to ensure that all production costs are covered, let alone that a suitable living is earned. Surely, if a farmer is not able to earn a living herself, how is she able to properly pay her workers?

One must know all of her production costs in order to determine whether she is making a profit by producing a given product. To assure that all costs are accounted for, it is imperative that one has a thorough record keeping system to track them. (This point is critical and cannot be downplayed!) It is imperative to consider all potential costs when making alterations to an operation or embarking on a new enterprise. Moreover, knowing past production costs assists with making budgeting and production decisions in general.

This resource guide points one to a wealth of information on a variety of financial management-related topics, with a general focus on budgeting, calculating production costs, and recordkeeping. It is divided into five sections based on resource type and includes books, training programs/workshops & presenters, online documents, enterprise budgets, websites, and an additional resources section.

Furthermore, this project is a work in progress. It is my hope to eventually include feedback from farmers that have utilized various resources; should you be willing to provide such feedback for any of those listed (particularly training programs/workshops), please contact me via e-mail at jnllmichael@gmail.com. If there is a resource not listed that you have found to be useful, please do not hesitate to bring it to my attention so that it may potentially be included.

Key Terms #

Assets: Resources owned by or owned to the business.

Balance Sheet: a financial statement that shows the financial condition of the business at a specific point in time. A balance sheet lists all assets and liabilities and the resultant owner equity.

Budget: a systematic way of organizing relevant farm management information by listing expected income and expenses.

Crop Enterprise Budget: an organized listing of your estimated gross income and costs which can be used to determine the expected net income for a particular enterprise. You calculate this type of budget on a per unit basis, such as an acre of land or head of livestock, for 1 year or one production period.

Depreciation: The allocation of the original cost of a capital asset over the useful life of the asset.

Direct Expenses: Expenses that are directly related to a production activity such as seed.

Indirect Expenses: Expenses that are not directly related to a production activity such as depreciation.

Liabilities: Debts owned by the business.

Long:Run Profitability: the income:producing ability of a business or a segment of a business in the long-run (more than 5 years). Long-run profitability is usually studied through the use of budgets (!).

Opportunity Cost: The income that could have been received if a resource had been used in its most profitable alternative use.

Overhead Costs (Fixed Costs): Expenses that do not vary with changes in output for the production period under consideration. Examples include real estate tax, depreciation, and interest on land.

Profitability: The ability of the business to generate income in excess of expenses. Profitability can be analyzed using the income statement, the balance sheet, and financial ratios.

Profit and Loss Statement (Income Statement)- a financial statement that provides a summary of income accrual and expense for a specific time period, such as a calendar or fiscal year. The income statement is useful in analyzing the financial performance or profitability of the business.

Short-Run Feasibility: The income-producing ability of a business or a segment of a business in the short-run (1-5 years). Short-run feasibility is usually studied through the use of a projected cash flow.

Variable Costs: Expenses that vary with output for the production period under consideration. Examples include hired labor, seed, fuel, feed, etc. (Most variable costs are also direct expenses.)

Partial Budget: Many changes in a farm business do not require complete reorganization. The partial budget is an appropriate tool in analyzing these kinds of changes. Examples where partial budgeting is useful include the examination of the addition of an enterprise, an examination of a change in enterprise size, or an examination of asset purchases.

Statement of Cash Flows (Historical)- a financial statement that shows the dollars flowing in and out of the business. The cash flow statement is often divided into operating, investing, and financing activities. Cash flows can be presented by week, month, quarter, or year for each income and expense category.

Statement of Cash Flows (Projected)- an estimate of the cash inflow and outflow for a business for some future time period.

Annotated Resource List #

Books #

This is the most comprehensive resource we have found and includes spread sheets that you can modify with data from your own farm:

  • Wiswall, Richard. The Organic Farmer’s Business Handbook: A Complete Guide to Managing Finances, Crops, and Staff—and Making a Profit. Vermont: Chelsea Green Publishing, 2009.

“Profit = income – expenses” is sure to become one’s mantra upon the completion of this book. This book is an indispensible resource for farmers involved in all types of enterprises, though it is directed toward the vegetable grower. Wiswall’s wise management and recordkeeping advice will enhance any farmer’s financial (as well as staff) management and administration skills overall regardless of the level of previous experience or type of enterprise(s) involved.  It is also quite accessible to the beginning farmer with less experience. While the focus of this resource list is on the expense end of the profit equation, The Organic Farmer’s Business Handbook is among the most comprehensive financial management resources available, covering everything from goal setting and budgeting for profit, to record keeping for expenses and labor on a per crop basis, not to forget marketing and management strategies. This book points to the fact that maintaining thorough expense and labor hour records, as well as sales records, is pivotal to the development of a sound budget and increasing overall farm profitability. The fourth chapter walks the reader through creating crop enterprise budgets and contains worksheets detailing costs to be included in budget calculation, as well as sample budgets for kale, broccoli, and greenhouse tomatoes. A CD accompanying the book contains spreadsheets that assist in the process of crafting documents such as profit and loss statements and cash flow projections, as well as crop budget templates and over 20 model budgets. An example of an employee job description and timesheet are also included, along with a payroll calculator.

The book price is listed at $34.95. Purchase information can be obtained at Richard’s farm’s website: http://www.catefarm.com/richardsBook.html

  • Henderson, Elizabeth and Karl North. Whole Farm Planning: Ecological Imperatives, Personal Values and Economics. Northeast Organic Farming Association. Athol, MA: Highland Press, 2004.

An excellent small manual addressing the three-fold nature of farm sustainability, Whole Farm Planning provides a highly enjoyable and readable perspective on assessing farm profitability through a lens of not only an economic, but also ecological and social (in reference to both personal and community values) sustainability. A section of chapter four in particular, entitled, “What You Need to Know about Farm and Food System Economics—Farm Scale and World Scale,” discusses record keeping and holistic financial planning, which includes a detailed section on planning for profit, expenses, and income.

  • Minnesota Institute for Sustainable Agriculture. Building a Sustainable Business: A Guide to Developing a Business Plan for Farms and Rural Businesses.  Beltsville, MD: The Sustainable Agriculture Network, 2003.

While it is an incredibly useful tool, this book is undoubtedly geared toward one who has never before created a business plan and likewise has little (if any) prior financial training or expertise, as implied by the title. Rather than being divided into chapters, Building a Sustainable Business is divided into “tasks,” the first of which calls the reader to assess her values, both individually and those that she has in common with her business partners. The second task is centered on the assessment of the “current situation” of the reader’s farm, requiring reflection on its history with a multi-faceted consideration of operations, available resources, and management; finances and risk exposure; marketing, distribution, and pricing; and finally, human resources. Next, the focus is on setting and prioritizing goals to guide future development, along with the creation of a mission statement. The section closes with the preparation of the mission, vision, and goals sections of the reader’s business plan and is followed by a strategic planning task, encompassing future marketing, operating, financial, and human resources strategies. Many of the typical financial documents are discussed, such as income statements and balance sheets.  Regarding production costs in particular, Task 4 is the most pertinent. A corresponding blank worksheet assists the reader in the recording and calculating of annual fixed and variable costs for potential “whole-farm strategy alternatives.” The interactive format of this book is one of its most desirable qualities; it is teeming with blank worksheets that walk the reader through creating her first business plan, step by step. Examples from real-life business plans of other operations inserted along the way facilitate the process and provide an added level of tangibility.

Copies of this publication are available for purchase online ($17):http://www.sare.org/publications/all_pubs.htm

Presenters & Workshops/Trainings #

  • Arnold, Paul & Sandy. “Recordkeeping on a Small Diversified Farm.” Jan 2009.

Owners of Pleasant Valley Farm in Argyle, New York, Paul and Sandy Arnold are well-known in the northeast for their ecologically and economically sustainable business practices, often giving talks to college classes and presenting workshops to groups of farmers. The location at and function for which this particular workshop was given is unknown. Accessible by visiting the first link listed below, this excellent presentation outlines recordkeeping methods used in creating and maintaining production planning and seeding/planting records, as well as harvest and sales records. Using merely one record sheet per farmers’ market per month, for example, the Arnolds illustrate not only the importance, but also the potential ease of recordkeeping. Operating under their “basic farm rule for viability,” that a given crop must have the potential to yield $15,000 per acre, a harvest spreadsheet is used to determine a given crop’s profitability by looking at the total quantity of a crop sold and the total accompanying monetary value. In the presentation, the couple warns of system-specific variables such as plant spacing that make it critical for each farmer to run her own numbers when applying these concepts. Being an operation that is focused on marketing primarily through farmers’ markets, marketing considerations are also discussed. Finally, timing records detailing what task performed on each crop when are also outlined, which allow the Arnolds to determine a crop’s profitability on an hourly basis as well as per acre.

http://www.uvm.edu/vtvegandberry/Farm%20Budgets/Arnolds%20Recordkeeping.pdf

Below is the web address to an article discussing a presentation given by the Arnolds at the Upper Midwest Organic Farming Conference, entitled, “Profitability through Season Extension.”

http://newfarm.rodaleinstitute.org/depts/talking_shop/0403/seasonextention.shtml

  • Blomgren, Ted. “How to Build a Successful CSA with a Successful Bottom Line.” Workshop. Young Farmers Conference. Stone Barns Center. 4 Dec 2008.

I had the pleasure of attending this workshop given by Ted Blomgren of Windflower Farm (Valley Falls, NY) at the Young Farmers Conference in 2008. It provided an excellent overview of the “number crunching” that some farmers tend to avoid and looked specifically at fixed versus variable production costs, in addition to depreciation. More than willing to share his operation’s financial information, the presentation contained numerous examples of the farm’s financial records kept in spreadsheet format to effectively illustrate the main points of the presentation. Ted will be giving an updated and expanded version in January ’10. If able, I will provide a link to that presentation as soon as possible.

In the mean time, the following is a link to a synopsis of a talk given by Blomgren at the 2003 New England Vegetable and Fruit Conference entitled, “Novel Structures for Extending the Cut Flower Season.”

http://www.newenglandvfc.org/2003_conference/proceedings_03/greenhouse_season_extension/novel_structures_extending_cut_flower_season.pdf

  • “Farm Beginnings Program.”

First administered in the late 1990’s, the Farm Beginnings Program was developed as a Land Stewardship Project initiative to strengthen farmers’ business planning skills, ability to plan at the whole-farm level and to set goals and refine values, as well as expand knowledge on sustainable farming techniques. It was created to provide a fusion of two differing pedagogies: classroom and on-farm learning with other farmers as the instructors. Moreover, the Farm Beginnings Program serves as a support mechanism and provides mentorship opportunities for new farmers.  See the link for a complete list of Farms Beginnings Program offerings by state.

http://www.landstewardshipproject.org/fb/whatisfb.html

  • “Grow Your Small Market Farm Business Planning Program.”

This program was developed in Iowa in 2001, with an obvious focus on food and fiber producers and their farm businesses. The goal of the program is to assist farmers in developing a business plan in addition to improving financial management skills in general. Participants in the program are taught to use software such as Quick Books Pro to maintain financial records. Like other programs of its type, the GYSMF Business Planning Program has a strong emphasis on building farmer-to-farmer support connections.

http://www.leopold.iastate.edu/research/grants/2008/M2005-19.pdf

  • “Hudson Valley Farm Beginnings Program.” Hawthorne Valley Farm.

Modeled after Farm Beginnings Programs in the mid-west and created and taught by sustainable farmers throughout the northeast, this approximately four month course is conducted primarily at Hawthorne Valley Farm in Ghent, NY. Field days are also spent at other farms in the region.

http://www.hawthornevalleyfarm.org/education/farmbeginnings.htm

  • Munsch, Jim. “The Beef Cost Model” and “The Vegetable Cost Model.” Workshops. Pricing and Profits: Making the Right Financial Decisions for Small-Scale Farmers. Southern Sustainable Agriculture Working Group Conference. 2009.

Jim Munsch is the owner of Deer Run Farms (WI), where he raises certified organic grass-fed beef. Currently in the process of developing a “user-friendly vegetable production costing tool” in cooperation with the University of Wisconsin, Munsch also frequently  presents at various conferences and functions throughout the mid-west and elsewhere, whether speaking on grazing systems or farm financial management. The link listed below will provide access to both of the PowerPoint presentations listed above (in PDF format): “The Beef Cost Model” and “The Vegetable Cost Model.”

“The Beef Cost Model” presentation opens by stating that it can hypothetically serve as a model for all meat, eggs, and milk/milk product production. Munsch’s flow of logic begins by identifying a customer base and the “basket of goods or services” that will be provided to them. It is then that a price range is determined. Next, one figures the cost to produce that basket of goods/services within her “value parameters;” when one compares that cost with the pre-determined price range, she is able to ascertain whether or not it is possible to make a profit. After making modifications, if no profit can be made, Munsch then advises to not to it or to “do it as a hobby.” Charts illustrating the correlation between meat cuts and animal yield are shown. He also warns of the weaknesses of various production cost resources, such as the issue of needing to know one’s input and opportunity costs when using publicly available estimation tools, for example. Munsch then details the process of developing a cost model for one’s operation, providing examples and cost estimations. Equipment owning and operating costs are also covered.

Much like “The Beef Cost Model,” “The Vegetable Cost Model” can serve as a template for vegetable CSA, market, and wholesale operations, as well as flowers and fruit. His methodology in approaching pricing and enterprise selection is the same as the first presentation and he again outlines some helpful tools available. Munsch encourages the audience to look at profit reports on a channel by channel basis, as well as the production costs for each crop prior to the inclusion of overhead, which affects pricing, production, and cost structure decisions. As with the beef model, there is an emphasis on calculating costs for each step in the production process. This presentation has helpful “cost tree” diagrams, providing a visual aid that depicts all costs involved in harvesting, cleaning, and packing, for instance.

http://www.ssawg.org/ed-sessions.html

  • “Organic Farming Financial Benchmarks Webinar by eOrganic.” Online Seminar. Cornell University Cooperative Extension.

This hour-long webinar is conducted by Dale Nordquist of the Center for Farm Management at the University of Minnesota. The data used therein was adapted from FINBIN, the correlating database to FINPACK farm financial analysis and planning software, which contains “benchmark financial information” allowing producers the opportunity to compare aspects of their operations to the data collected from participating operations using the software. In the webinar description, FINBIN is touted as being the “largest and most accessible sources of farm financial and production benchmark information in the world.” As indicated by the title, the webinar is focused on the information provided by participating organic producers. This information is particularly helpful, as much of the pre-existing benchmark data available is reflective of higher-input (comparatively speaking) conventional production methods. Debuting on January 12, 2010, “Organic Farming Financial Benchmarks Webinar” is viewable any time through the eOrganic Webinar Archive (see the link below).

http://www.extension.org/article/24985

  • “Strategic Farm/Ranch Planning and Marketing.” Online Course. SARE National Continuing Education Program in Sustainable Agriculture.

Created mainly for agricultural/community development professionals and cooperative extension and NRCS employees, there are a series of online courses available through Sustainable Agriculture Resource Education (SARE).  This specific course is tailored to the beginning farmer, or to those that are “exploring new business ideas” and/or in a transitional phase. The course is divided into three sections: Planning and Business Development, Marketing Opportunities and Strategies for Sustainable Farm/Ranch Businesses, and Managing the Farm/Ranch Business for Long-Term Success. For more information and to learn about enrollment, see:

http://www.sare.org/coreinfo/ceprogram.htm

  • “Tilling the Soil of Opportunity.”  NxLevel.

NxLevel is a non-profit organization that has enabled the development of a series of entrepreneurial courses that vary in focus and are administered throughout the country. This particular 10-session course is available to those in the “alternative agriculture” (the farmer that is engaged in smaller scale sustainable agriculture, as opposed to conventional commodity-oriented agriculture) field and covers resource assessment, production planning, budgeting, and other financial management topics. To see if “Tilling the Soil of Opportunity” is taught in your state, visit the link listed below.

http://www.nxlevel.org/Alt_Agg.htm

  • Wiswall, Richard.

In addition to farming in Vermont with his wife at their operation, Cate Farm (VT), and being an author, Wiswall often presents at farming conferences and gives other workshops. To keep up with his schedule and catch an opportunity to see him speak, visit the following link:

http://www.catefarm.com/news.html

Also, for your listening pleasure, the following is the web address for a Vermont Public Radio program on which Richard spoke, the title of his talk being “The Business of Organic Farming.”

http://www.vpr.net/flash/audio_player/audio_player.php?id=29634

Online Documents #

This Pacific Northwest Extension publication, a collaboration between Oregon and Washington State University and the University of Idaho is fairly basic in terms of the information given, but is quite helpful to the beginning farmer, for example. Opening with the explanation of the importance of understanding production and marketing costs and creating budgets, the document then thoroughly outlines fixed versus variable production costs and interest calculation. Other sections of the publication cover conducting a breakeven analysis, profitable crop identification, and variable cost decision making.

Provides very simple introductory information on different types of budgets (enterprise, partial, whole farm, cash flow) as well as the benefits to creating annual enterprise budgets. Accounting styles are also mentioned and a crop enterprise budget template included.

  • Kastens, Terry. “Farm Machinery Operation Cost Calculations.” Kansas State University

Agricultural Experiment Station and Cooperative Extension Service, May 1997. http://www.ksre.ksu.edu/library/agec2/mf2244.pdf.

As detailed in this bulletin, the costs associated with owning and operating farm equipment must not be overlooked and their importance not underestimated. One must carefully assess equipment costs when selecting most profitable enterprises of her operation, investigating a shift in enterprise type or scale, or minimizing production costs in general. The first portion of the document focuses on developing an understanding of how equipment is valued over time, with the second looking at “traditional operating costs.”  The final portion covers fixed ownership costs, such as taxes and financing.

An excellent reference tool, this document effectively decodes the financial jargon that can potentially be confusing to one who has no formal business training. Grouped by type rather than alphabetically for ease in referencing, “Important Farm Business Terms Defined” encompasses over forty definitions under the following headings: Cash, Income, Gross Income, Expenses, Net Income and Returns, Balance Sheet, Assets, Liabilities and Owner Equity, and Budgeting versus Cash Flow. Although it is somewhat basic information, it is an ideal starting point when looking to enhance one’s financial management skills as a farmer.

Partial budgeting is clearly explained in this document as a way of analyzing costs and benefits of a given shift in operations. The reader is shown not only in what instances, but also how to create a partial budget.

  • Wright, Bill. “Crop Budgets for Direct Marketers.” Emerging Agricultural Markets Team, University of Wisconsin Cooperative Extension. < http://cecommerce.uwex.edu >.

This University of Wisconsin Cooperative Extension information sheet covers the importance of record keeping, the structure of a specialty crop budget, and risk reduction strategies.

Enterprise Budgets #

This website provides a host of links to fact sheets on the production of livestock, vegetables, fruit, and even apiculture. Fact sheets contain not only basic production information, but marketing, enterprise budgeting, and financing information as well.

In addition to a comprehensive list of links to available budgets for organic vegetables, fruit and nuts, herbs, commodity crops, and livestock, Holly Born also includes some basic information on enterprise budgets.

This resource provides a step by step guide to creating crop enterprise budgets and presents a series of items for consideration. Machinery cost estimates are included. Available organic enterprise budgets are also listed by state in the reference section of the document.

The information on this website begins with a discussion of the various components of an enterprise budget: variable costs, fixed costs, gross income, and income above selected costs. The significance of calculating break-even prices and yields and how to do so is also covered. Corn and cow-calf beef enterprise budget sheets and information charts are included as examples. While modeled after a conventional operation, there is potential to adapt record templates to one’s own operation.

  1. “Organic Production Practices: Northeastern United States.” http://www.agrisk.umn.edu/Budgets/Display.aspx?RecID=15&Pg=1.

Provides links to enterprise budgets created by the Rutgers Cooperative Extension for field crops, certain vegetables, apples, dairy goats, and spring lamb.

Websites #

This key resource allows one to figure her net return per acre on a given crop. Simply by filling in information applicable to one’s operation on the template and omitting sections that are not, the net return is calculated automatically. It is suitable for conventional, IPM, and organic producers alike and is altered dependent on which of those listed is selected. The “Interactive Smartform Budget” is certainly worth investigating as a resource, albeit the crop selection is somewhat limited and livestock is not included in the model. (Also, please note calculation assumptions at the bottom of the form.)

Other Resources #

Agriculture Network Information Center. http://www.agnic.org/.

“Alternative Marketing and Business Practices.”  Alternative Farming Information Center, USDA National Agricultural Library. http://afsic.nal.usda.gov/nal_display/index.php?info_center=2&tax_level=1&tax_subject=299

College of Agriculture and Resource Economics. University of Maryland. http://www.arec.umd.edu/Extension/FarmandFinancialManagement/index.cfm

FINBIN Farm Financial Database. Center for Farm Financial Management. http://www.finbin.umn.edu/default.aspx?PG=About

Kurtz, James N. *Financial Management Series #1-5.*Ag Business Management. University ofMinnesota Extension, 2009. http://www.cffm.umn.edu/Publications/pubs/FarmMgtTopics/FinancialManagementSeries.pdf

Lessley, Billy V. et. Al. “Using the Partial Budget to Analyze Farm Change.” http://www.smallfarmsuccess.info/management/print_547.cfm.

McCorkle, Dean et. Al. “Financial and Economic Terms.” Department of Agricultural Economics. Kansas State University, 1999. http://www.oznet.ksu.edu.

Organic Price Report. Rodale Institute. http://www.rodaleinstitute.org/Organic-Price-Report.

Pinney, Constance et. Al. “Budgeting for the Small Business.” United States Small Business Administration, 1991.

Sustainable Agriculture Resource Education http://www.sare.org/

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