By Spencer Nietmann
Originally published September 1, 2018
This article makes reference to the author's cash-in-hand spreadsheet. Click here to download a zipped folder with a template spreadsheet, the author's instructions for use, and a sample spreadsheet of how it could be filled out. Then customize it with your own farm's numbers!
At the risk of taking the romance and wonder out of our profession, I think that farming can be boiled down to two important tasks: figuring out how to make money, and figuring out how to spend money. It might appear oversimplified, but when farmers decide which crops to grow, where to sell them, what techniques to use in growing them, how and when to harvest, and so on through the production cycle, we are just deciding how to make money and how to spend money; or, in a word, how to manage cash flow.
With that in mind, I will describe how Moose Meadow Farm has managed its cash flow in the first two years to further the discussion about farm finances, with specific regard to a small farm in its infancy. But first, a brief economic overview of the farm.
We started selling produce in October 2016, after spending $57,000 of our savings on farm startup. See the May 2017 GFM for details of these initial expenses. We have sold produce for 91 of the 94 weeks since then, with two short planned breaks. In 2017, we grew on 4/10ths of an acre and grossed $42,000. In 2018 we are growing on 6/10ths of an acre and are on pace to gross $90,000.
Though these are small gross income figures, we have spent money aggressively in these first two years in order to set the farm up for continued economic growth. At the time of this writing, the majority of our startup expenses are behind us and we can clearly see the path towards another big jump in farm income next year. Below are the nuts and bolts that got us here.
Before we began selling vegetables in 2016, we created a simple spreadsheet so that at any given time, we could see a whole year’s cash flow projections in an easy to understand, month-by-month format (see Fig. 1 below). In the spreadsheet, Column B shows each item in the budget, both expenses and incomes. Column A shows the month in which that item is expected to occur. If the item (Column B) is an expense, Column C is filled in with the estimated value. If the item (Column B) is income Column D is filled in with the estimated value. Column E is our month-by-month “cash in hand” projection. The formula for that column is the previous row’s cash in hand, plus that row’s income, minus that row’s expenses.
Here’s an example: in row 100 we have an item expected to come in September 2018 (A100) that is a new caterpillar tunnel (B100) This is an expense estimated at $1,500, so C100 was filled in accordingly, and D100 (income) was left blank. Then, our formula shows that if we had $16,000 before that purchase (E99), we would now have $14,500 after the purchase (E100).
Also in September, we have a forecasted income of $7,000 (D101) from grocery store sales (B101). This then bumps the $14,500 cash-in-hand figure (E100) up to $21,500 (E101). Since each row in Column E is dependent on the previous row, any changes to projected income or expenses will be reflected in the remainder of the spreadsheet. In this way, we can manipulate our projected expenses or incomes in one month to see how they might affect our cash in hand five months down the road, for example.
At least once a month we sit down to assess our financial situation, and I update the first “cash in hand” cell (E2) to show our actual cash in hand, reflected in our bank statements. I then zero out all expenses and incomes that have already occurred and are therefore no longer projections but are accounted for in our current, not projected, cash in hand number (see Fig. 2 below). From there, the formula for Column E spits out a month-by-month projection of our cash in hand. If we see any month in the next year that dips below $2,000—our self-imposed safety net—we shift some expenses down the road so that money never gets tight.
We purposefully underestimate our income and overestimate expenses, to avoid stressful financial surprises. As a result, our cash in hand has often been slightly higher than planned, which allows us to move projects up the list. This allows us to purchase expansions and efficiencies as soon as we are able, which means that cash flow can increase month by month.
We aren’t locked into one plan for a year, and then forced to count our cash and do projects with whatever we have leftover at the end of the season. Being able to quickly adjust on the fly—weekly, if needed—has been critical to our sanity and finances. As we’ll see later in this article, adjusting our spreadsheet could absorb even a huge reduction in projected income.
Cash flowing into the farm
Our cash flow management has been built around our goal of reaching cruising altitude on the farm as quickly as possible. Cruising altitude for us means two things. First, we are shooting for a reasonable income that covers ample leisure activities and retirement savings. Second, we would like to achieve that income while working 45 hours per week or less in the height of the season. To break it down into achievable chunks, we aim to reach the income side first, and from there meticulously pare down the hours we work. We examine every farm decision we make through the lens of these goals.
To achieve these goals, we made two important decisions about how to make money. The first was to grow and sell vegetables year-round. This allowed us to quickly make a name for ourselves by being one of the only winter vegetable farms in our area, and it smoothed out the seasonal cash-flow fluctuations common on three-season farms. In turn, this consistent, year-round cash flow has allowed us to tackle farm expansions and improvements every month of the year.
With cash flowing in, we could have cash flowing out to pay for infrastructure that would make the farm more profitable. Every month has seen capital improvements that allow the following month to see an increase in cash flow. Furthermore, by having a 50-week harvest season each year, we have a lot more opportunities to make money than those farms who have to cram all of their yearly earnings into 20 or 30 weeks of harvest.
The second decision was to focus on the crops that we knew to be moneymakers on the small farm: salad greens, vining fruiting greenhouse crops like peppers and tomatoes, and microgreens. In order to sell a lot of a few crops rather than a few of a lot of crops, we dropped the farmers market that we attended in our first year and replaced that revenue stream with three local grocery stores. In 2018, these stores plus a few restaurants make up about half of our summer income, and the other half is our CSA.
Keeping the CSA, despite it requiring a diverse crop matrix and not necessarily being the most efficient use of our space and time, was itself a conscious financial decision. Although we want to focus more and more on the few crops with the highest return per hour worked, the CSA gives us a cash-flow boost for springtime infrastructure upgrades and reduces the risk of selling a small selection of crops to only a handful of wholesale accounts. That said, we choose our CSA crops wisely so that we are only producing food that makes financial sense for our farm.
From a cash flow perspective, the CSA and wholesale accounts dovetail nicely, with the former providing guaranteed income in one lump sum in the spring, and the latter providing steady, reliable income on a week-by-week basis. It should be noted too that with these two sales outlets, we don’t have huge weeks of sales in July and August, when everything we grow is coming on at once.
Rather, the grocery stores take the same amount of salad greens in November as they do in July, which makes our cash flow predictable and spreads our workload more evenly throughout the season. I would argue that cash flow and labor management are easier with 50 weeks of reasonable sales than with 25 weeks of outstanding sales, even if the total sales for the year were the same.
All this is to say that from the beginning we have tailored our sales outlets and crop selection to support our livelihood. We aren’t farming to get rich, and we don’t cut corners when it comes to organic standards or sustainability, but every decision we make is informed by farm economics.
Cash flowing off the farm
Planning the income side of our cash flow as described above was fairly straightforward, but the decisions about how to spend money were less clear. There are tools that make a farmer’s life easier that don’t translate into more saleable crops, and there are other tools that translate directly into saleable crops. It is sometimes hard to distinguish the two. As a young farm trying to grow our income quickly, we needed to focus on the second type, especially in our first year. Rather than thinking of our expenses as cash flowing off the farm, we choose to think that we are simply using our cash flow to create more cash flow. We try to view every purchase as a way to increase our income.
Accordingly, our major expenses in our first year were soil fertility, irrigation, and high tunnels. Without these three, we could not reliably grow quality produce year-round, and so we viewed them as necessities. Since our start-up capital was finite and much of it went towards the tunnels, water, and soil, we could not afford proper tools to make the farm run efficiently. We worked our fancy automated high tunnels with $14 hardware store rakes and hand-me-down wheelbarrows.
Luckily though, this was part of the plan. We decided that our first year expenses should be directed almost exclusively towards increasing cash flow, and our second year expenses should focus more on time management. Since all of the expenses in our first year were paid for with cash, we knew that the majority of our year-one gross income could go towards efficiency upgrades for year two. So far, things have gone mostly to plan.
We now have three 34’x96’ high tunnels, reliable automated irrigation, and productive fertile soil. These things make us money. In year two, we were able to purchase those tools that don’t directly generate income but make propagation, bed preparation, harvesting, washing, and packing quick and effective. The result is that though we will have doubled our gross income from year one to year two, our workload has remained the same—still too high, but the same nonetheless.
As we move forward, we want to continue this trend. Our income-generating infrastructure is mostly in place, so our focus will be on using these resources to their fullest capacity while decreasing the time it takes to do so.
0% credit cards
Since we had a large list of planned upgrades for the spring of year two, and we were not yet confident that our production and sales would come through as planned, we decided to take out a 0% credit card. This is a cash flow management trick we learned from Paul and Sandy Arnold of Pleasant Valley Farm. If you have planned expenses that you are confident can be paid for within the 0% interest period of a new credit card, it makes sense to use this interest-free debt to realize those upgrades. You can purchase infrastructure that will increase the farm’s cash flow, using money that you don’t yet have, without paying any interest for that credit.
We are extremely debt averse, and we didn’t even want the interest-free debt of a 0% card. That said, we decided that taking out such a card and having the option of using it should our income be lower than expected was a good idea. Having a back-up plan and a safety net is never a bad thing. We ended up being able to make our planned upgrades without the new card, relying on income generated by the farm to make purchases.
We did use the card to front part of the money for our newest high tunnel, and we are in the process of being reimbursed by the NRCS for that expense through their EQUIP grant program. It felt good to use a 0% card on a purchase that would be covered by a grant, and to not need the card for any other expenses on the farm.
Cash flow crisis
Though cash-flow management in these first two years has been surprisingly straightforward, I would be remiss to paint a rose-colored picture of a young farm seamlessly implementing its two-year financial plan. In the spring of this year, we had a solid plan of selling clamshelled spinach and spring mix to three grocery stores. A spring outbreak of spinach downy mildew wiped out our first five spinach plantings, effectively replacing our $5000 spring spinach income projection placeholder with a giant goose egg.
With a litany of planned expenses and a dramatic reduction in planned cash flow, we had some reconsidering to do. Enter our trusty spreadsheet. We examined our planned expenses, prioritized and re-organized given our current cash flow situation, and moved forward. Things like greenhouse heat, seeds, and basic supplies were non-negotiable, but others on the list like a chipper/shredder for making compost or a water heater for our wintertime wash station could wait. Our spreadsheet made it clear which expenses would be moved down the list, and when during the season they might be affordable.
Simultaneously, we began brainstorming ways to increase our sales and get back on track with our income projections. The obvious choice here was to increase our microgreens sales. We had the greenhouse space to scale up our microgreens quickly, so we brought samples to a handful of new restaurants each week. We gained about eight new accounts, which have proved lucrative for our microgreens business and have translated into increased salad greens, herbs, and tomato sales as well. Microgreens are, after all, a chef’s gateway to other local produce.
We got back on track with spinach as the spring progressed, and though we haven’t totally replaced the potential income we lost to downy mildew, we were forced to pound the pavement in search of new accounts, which will serve us well through this year and beyond. In all, we think our budget spreadsheet allowed us to be light on our feet in the face of cash flow adversity and kept us away from debt or financial stress during the early months of our farm.
I hope that this article has shed some light on the ins and outs of financial decision-making on the small farm. We are just over halfway through our second year on the farm, and we have by no means “made it.” We work long days and re-invest the majority of the farm income back into the farm. By examining each decision with our financial goals in mind, though, the vision of profitable farming is becoming clearer all the time.
After farming in Maine for many years, Katherine Creswell and Spencer Nietmann started Moose Meadow Farm in Clark Fork, Idaho in 2016. Follow them on Facebook and Instagram to see the twists and turns their farm takes!