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Planning for My Urban Market Garden Business

David L. Marrison, Associate Professor & Extension Educator39 Wall StreetJefferson, Ohio 44047440-576-9008marrison.2@osu.edu

Objectives• Provide insight on how a small “farm” or “agri-

business” or “farm market garden” is started.

• Provide tools for you to develop goals and objectives for your small business.

• Provide tips for developing an farm market garden business plan.

• Provide additional tips for success your business.

What is the Reason I Want to Do This?

• Income generation

• Stress release

• I have the property

• For the greater society

• To avoid my spouse and/or family

• I really don’t know

Starting a Small Market Garden Business

• Determine foundation (why & what you believe in)

• Assess your individual strengths and weaknesses

• Develop personal goals & mission

• Develop an inventory of what the business has

• Conduct a SWOT Analysis

• Develop a Business Plan

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Where am I?• Why do I want to have a small farmer?

• Am I highly motivated toward this business or am I at the “I’ll give it a try stage?”

• Do I have support from my family (moral, labor, financial, management, off-farm income?)

• Do I have a realistic or romantic understanding of farming?

What are my skills?– Production (growing/raising)

– Mechanical

– Financial

– Labor Management

– Marketing

SWOT Analysis

S W

O T

Conducting a SWOT Analysis• Strengths and weaknesses are internal to the

farm business. They are things you can control.

• Strengths– What makes you competitive?– What do you do better than others?– What do others see as your strengths?

• Weaknesses– What could you improve?

– What should you avoid?

– What does your competition do better?

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Conducting a SWOT Analysis• Opportunities and threats are external to the

farm business. They are things you need to monitor but have no control over.

• Opportunities– What trends are you facing– What good opportunities are available?– What is happening in the community?

• Threats– What obstacles do you face?– How about the competition?

Where are we?• Who is involved in the venture?

• What is the family’s philosophy on money, quality of life, and work hours?

• Who will be responsible for what areas of the business?

• What resources do we have? - land, capital, equipment

Ohio State University Extension

Inventory of Where We Are

Today

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• A mission statement is a business plan written on the head of a pin.

• The fundamental underlying reason for the business to exist—its critical purpose.

• Meets family, financial, customer, and employee needs.

Developing a Mission Statement Mission Statement Examples OSU Extension

"We create opportunities for people to explore how science-based knowledge can improve

social, economic and environmental

conditions.”

SMART Goals

• What are your goals?– Personal goals– Family goals– Business goals

• SMART– Specific– Measurable– Attainable– Rewarding– Timed

Synchronized

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EcoVillage ProduceEcoVillage Produce Mission Statement

EcoVillage Produce brings the bounty of fresh vegetables and herbs from the urban garden to your

kitchen

EcoVillage Produce Goals: Increase access to fresh vegetables and fruits in our

neighborhood Increase income for urban farmers

Increase business development in the neighborhood

Factors to Consider• Earning Potential

• Cultural Practices

• Learning Curve

• Crop Rotations & Land Leases

• Machinery & Labor

• Market & Pricing

• Cash Flow

• Record Keeping

• Governmental Programs & Regulations

• Risk Tolerance

Earning Potential• What is your goal for profit?

• Complete Estimating Our Family’s Goal for Profit Worksheet.

• Start penciling out a sample budgets for your operation.

Enterprise Budgets• Basic building blocks.

• Use as estimates for resources required, expected costs and returns.

• Use as a guide and add other factors which you need to consider.

• Available for all types of enterprises from a variety of State Extension Services.

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Look for Enterprise Budgets at:

The Organic Farmer’s Business Handbook ISBN: 978-1-60358-142-4

Penn State Ag Alternatives Budget http://agalternatives.aers.psu.edu/

OSU Extension https://farmoffice.osu.edu/farm-management-tools/farm-budgets

University of Wisconsin https://fyi.uwex.edu/farmteam/

University of Florida http://smallfarms.ifas.ufl.edu/planning_and_management/budget

s.html

Learning Curve

• In accepting the challenge of raising a new crop or animal and then marketing it, you should recognize that the learning process is not instantaneous.

• Expect failures in the start-up years.

Cultural Practices• Do you know what you need to know to

grow or raise the agricultural/horticulture enterprise you choose?

• Where can you get help to learn production practices?

• Is our climate conducive to this enterprise?

• Use of crop journals is recommended

Crop Rotations & Land Leases

• Are any crop rotations needed where a low profit crop may provide advantages in terms of soil fertility, disease incidence, and weed load.

• Do I have the needed land resources or will I need to lock in a long term land lease?

• Is my site secure from theft?

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Machinery & Labor

• What are the costs for the needed equipment, land, labor, or facilities?

• What are the costs of renting?

• Can I custom hire for part of the production cycle?

• How much and when do I need labor?

• Is reliable labor available?

Machinery, Land & Equipment• Should I really own all the equipment? Could I

custom hire or rent equipment?

• Push the pencil to see which is more economical. DIRTI Basics are Depreciation, Interest, Return on investment, Taxes and Insurance.

• If leasing land….use written leases.• Example lease agreements are at:

https://ashtabula.osu.edu/program-areas/agriculture-and-natural-resources/farmland-rental-resources

• Average rents can be found at:https://www.nass.usda.gov/

Market & Pricing• Who is going to buy your product?

• Is the target market appropriate for the timing, quality, and quantity of your product?

• How do you relate to customers?

• How will you advertise your product?

• Where will you sell your product?

• Are contracts involved?

• Do you know how to price your product?

• Is storage required?

Cash Flow• Budgets give an estimate

of receipts at the end of the year but not when costs are incurred or returns are earned.

• For enterprises with lengthy start-ups (grapes, raspberries, apples), how will you cover costs until returns are realized?

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Where do I get money?• Personal savings & investments• Earnings from ag/hort enterprise• Off-farm income• Loans

– Farm Service Agency– Farm Credit Services– Commercial banks– Ag Suppliers

• Grants• Rich Uncle Scrooge

What type of records should be kept on the

farm?

Types of Records• Production

– Crop practices (sprays, fertilizer, chemicals, yield)– Livestock (breeding, birth, vaccinations, feed, yield)

• Financial– Balance sheet, cash flows, P&L

• Tax– Schedule documentation, mileage, depreciation

• Inventory– Feed, supplies, machinery

Governmental Programs, Taxes & Regulations

• What governmental programs do I need to be aware of?

• Do I need special licenses from the Ohio Department of Agriculture, County Auditor, Health Department or other agencies?

• Am I taking advantage of the CAUV, AG District, Sales Tax and Federal Tax Breaks/Exemptions?

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A Farm Defined by U.S.D.A.• The United States Department of Agriculture

defines a farm as any place producing $1,000 worth of products in one year.

• By this definition, a “farm” can be as small as a greenhouse in your back yard or can be 8 acres of soybeans.

• As a beginner, your canvas is bare.

A Farm Classified by the I.R.S

• The Internal Revenue Service indicates you are in the business of farming if you cultivate, operate, or manage a farm for profit either as an owner or tenant. A farm includes stock, dairy, poultry, fish, and truck farms. It also includes plantations, nurseries, ranches, ranges and orchards.

• Complete Schedule F (Form 1040)

Get an E.I.N from the IRS

• SS-4 is the IRS form to obtain an Employee ID Number.

• Can complete on-line or via

Farming for Hobby or Profit?

• Why does it matter?– Expenses are deductible beyond income if you are

operating for profit.

– And are not deductible beyond income if you operating as a “hobby” or not-for-profit.

– I.e., cannot report a loss.

• Ensuring that your operation qualifies as a “for profit” business according to the IRS will reduce your income tax burden.

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Farming for Hobby or Profit?

• IRS Rules– See Farmer’s Tax Guide– There is a presumption that a business is “for profit” if:

• Business shows a profit in three out of five years.• Or two out of seven years for breeding, showing, racing and

raising horses.• Profit = gross income is more than deductions.

• The IRS may rebut the “three out of five” presumption by establishing a lack of profit motive.

• Taxpayer must show an intention to be profitable.– Based on facts and circumstances– Considering all “factors” of profitability

Farming for Hobby or Profit? Factors of profitability Operate in a business-like manner Time and effort spent on farming Dependence on income from farming Losses are beyond control or normal for start-up Change of methods to improve profitability Make a profit some years Had success in similar activity in past Have expertise Not operating for personal pleasure or recreation Expect to make a profit from appreciation in future

Schedule F Income

• Sales of livestock & other resale items

• Sale of livestock, produce, grains and other products you raised

• Crop insurance proceeds

• Custom hire income

• Other farm income

Schedule F Expenses

• Car & truck expenses

• Chemicals

• Conservation Expenses

• Custom Hire

• Depreciation

• Employee Benefit programs

• Feed

• Fertilizers & Lime

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Schedule F Expenses

• Freight & Trucking

• Gasoline, Fuel & Oil

• Insurance

• Interest

• Hired Labor

• Pension

• Rents or Leases

• Repairs & Maintenance

Schedule F Expenses

• Seeds & Plants

• Storage & Warehousing

• Supplies

• Taxes

• Utilities

• Vet, breeding & medicine

• Other Expenses

http://www.ruraltax.org/

Registering my farm name• Who do I call or what form do I need

to fill out to be classified as a farm?

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Registering my farm name• Register name if the business engages in

commerce under any name other than the legal name of owners.

• Register with Secretary of State’s office

• $39 for 5 years. Renewal is $25

• http://www.sos.state.oh.us/SOS/Businesses.aspx

Ohio Farms• Ohio Department of Agriculture does require farms to

hold regulatory licenses for different farm operations (pesticide applicators, nursery license).

• Additional permits/regulations may be required from the county and township level.

• The only classification for Ohio Farms is under the Current Agricultural Use Valuation program for a reduction in your property tax.

• Must have 10 acres or earn $2,500 gross profit off <10 acres.

• Allows for a 65% tax reduction.

Ohio offers Sales Tax Relief

• Ohio Department of Taxation exempts Ohio Farms from paying sales tax on production expenses.

Ohio Sales Tax Exemption

• Sales to persons engaged in farming, agriculture, horticulture, or floriculture, of tangible personal property for use or consumption directly in the production of tangible personal property for sale by farming, agriculture, horticulture, or floriculture are sales tax exempt.

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What’s Exempt• This would include, but is

not limited to: seeds, fertilizers, insecticides, pesticides, field tiles, tractors, plows, combines, and specially designed motor vehicles with PTO applicator units that travel from farm to farm to apply chemicals and fertilizers.

What’s Not Exempt• This would include: almost all motor vehicles

licensed to operate on the highway, lawn mowers, weed eaters, items used to maintain set-a-side fields, chain saws, all purposes vehicles that are primarily used for recreation, and home garden equipment.

Employer • New Hire: Report Newly Hired and Re-Hired

Employees to the Ohio New Hire Reporting Center. Report employee information at www.OH-NewHire.com(opens in a new window).

• Workers Compensation: Required to purchase if hire 1 or more employees. Rating is based on job descriptions. Can hold on yourself as sole proprietor. New Employee packet can be found at State Workers Comp’s web site at: https://www.ohiobwc.com/employer/forms/coverage/default.aspx

• Check out Farm Bureau’s group program

Protecting Against Disaster……• Protect Yourself (don’t be a risk taker)• Business Structure (can help)• Pre-Nuptial Agreements• Long Term Care Insurance• Property Insurance• Liability Insurance (general & product)• Employee Considerations

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Business Structures• Sole Proprietorship• Partnerships (General or Limited)• Limited Liability Company (LLC)• Corporation (C or S)• 501 C3 (see Publication 557)

– http://www.irs.gov/

Breaking the Law?

• Ohio Department of Agriculture• http://www.agri.ohio.gov/• 1-800-282-1955

• Local Health Departments• Local City/Township Officials• Ohio Department of Labor• Labor Law Help

• http://www.dol.gov/compliance/

Connect with OSU on the Web

All county web sites have been revamped: http://ashtabua.osu.edu

Ohio Ag Managerhttp://ohioagmanager.osu.edu/

Ohiolinehttp://ohioline.osu.edu/

Farm Service Agency Loans

• United States Department of Agriculture-Farm Service Agency

Cuyahoga/Medina County

(330) 722-2628

Farm Service Agency

Portage & Summit

(330) 296-4311

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Farm Service Agency Loans• NEW Micro-Loan for New &

Beginning Farmers

• Socially Disadvantaged Farm Loan Program

• Beginner Farm Loan Program

• Check out at: http://www.fsa.usda.gov/

Natural Resource Conservation Service

NRCS

6000 Lombardo Center, Suite 110Seven Hills, Ohio 44131-6910

(216) 503-9230

https://www.nrcs.usda.gov/wps/portal/nrcs/site/oh/home/

Ohio State University Extension

Who Can Give You Perspective?

• Fresh Ideas

• Sounding Board

• Technical Information

• Evaluation of Plans

• Suggest Improvements

• Motivate managers to address problems

Ohio State University Extension

Maybe Set Up an Advisory Board

• Attorney

• Accountant

• Financial Planner

• Extension Educator

• Business Consultants

• Mediators

• Lender

• Other respected business persons

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Ohio State University Extension

Advisory Board Functions

• Fresh Ideas

• Sounding Board

• Technical Information

• Evaluation of Plans

• Suggest Improvements

• Motivate managers to address problems

• Mediate Differences

Sustainable Ag Research & Education (SARE) Grants

• SARE works to increase knowledge about - and help farmers and ranchers adopt - practices that are profitable, environmentally sound, and good to communities.

• Producer grants, typically between $1,000 and $15,000, go to farmers and ranchers who test innovative ideas and share the results with their neighbors. Projects address crop and livestock production and marketing, stewardship of soil and other natural resources, economics and quality of life.

• Application details, deadlines, and percent success vary by region and program http://www.northcentralsare.org/Grants/Apply-for-a-Grant

What is a Business Plan?• Sets forth a strategy for the success of your

venture.

• A guide for carrying your idea forward into a successful business operation.

• States the strategic direction

• Describes the nature of your products or services and how you intend to market them

• Outlines the overall market and how your product compares with competitors

Why Develop a Business Plan?• So you don’t lose money!

• It allows you to create a road map for your business.

• Will help summarize your intentions to your outside supports (banker, grant agency) what your business is all about.

• There are a hundred different suggestions for what to include in business plan----choose one which works for you!

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Start-Up Business

• Mission Statement• Goals and Personal History• Whole Farm Business Strategy• Performance/Market Assumptions• Income Projections• Cash Flow Projections• Risk Analysis• Contingency Plan

On-Line Help

• AgPlan, from the Center for Farm Financial Management at the University of Minnesota.

• https://www.cffm.umn.edu/products/AgPlan.aspx

Tips for the School of Hard Knocks• Start Slow---set goals for your operation

(see next slide)

• Don’t quit your day job

• Develop budgets!

• Know your market!

More Tips• Attend as many field

days, conferences and workshops as you can.

• Find mentors that are doing them same thing that you are doing.

• Records, records, records

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For More Information

David Marrison

OSU Extension-Ashtabula County

39 Wall Street

Jefferson, Ohio 44047

440-576-9008

marrison.2@osu.edu