Excerpted with permission from Chapter 1 of Crop Planning for Organic Vegetable Growers by Frédéric Thériault and Daniel Brisebois

Effective crop planning doesn’t begin with crops, but with your pocket book. You have to know how much money you want or need to make in order to figure out how much to seed. Step 1 presents a three-part approach to holistic financial planning; it will guide you in your budget design and will offer a simplified approach for beginners. When you have completed this step, you should have a budget that shows your gross sales target, your salary target and a rough draft of your expenses for the upcoming year.

Holistic financial planning
Allan Savory of the Center for Holistic Management  developed a three-part approach to holistic financial planning which we have simplified a little. He recommends to start by planning the income, then the profit and finally, the expenses. For us this will mean begin by planning your gross sales, then determine your retained earnings (salary) and finally plan the expenses.
Some profitable farms spend 25% of their gross sales on expenses, others spend 75%. It all depends on the size of their operation and on whether they hire help. Each case is unique. Be sure to set a gross sales target that suits your circumstances and that you can achieve with careful budgeting. Prioritize and limit expenses to save a larger portion of your gross sales for yourself. This process makes the difference between a profitable farm and one that loses money. After all, one dollar saved is like two dollars earned.

Plan your farm income
How many dollars worth of vegetables can you produce and sell a year? That’s the first question to ask yourself as you set your gross sales target. If you have been farming for a while, you can realistically estimate the vegetables you are able to grow and how much money you can make from them. If you are a new grower, this question might leave you perplexed. Your capacity to produce depends on several things, but foremost on your vegetable growing experience.
Anne Weil, agronomist with Club Bio-Action in Quebec, has noticed that independent of scale, the gross income per hour of the top diversified vegetable growers in Quebec is relatively constant. They average $18 per hour each person (owner or employee) works. In general, a farm owner works about 2,000 hours in a year. This would produce $36,000 of gross revenue (before expenses) and sets the upper limit you can expect to make if your farming system runs almost perfectly. One full-time beginner can likely produce $5,000-$10,000 of gross sales. Keep these numbers in mind as you determine a gross sales target for your farm.

Plan your salary
How much money do you need to earn this year? What are your living and personal expenses? How much do you want to set aside in savings? Consider whether you will be earning off-farm income.
It’s helpful to sketch a personal budget but personal expenses should not be mingled with business expenses. In the business numbers, your personal financial needs are all lumped into one line item – the salary or retained earnings line.
Choose the salary that you want to draw from your farming business next year. If several partners manage the farm, choose a total salary amount for all of the farmers. Remember, you won’t get rich farming. You will enjoy a pleasant, simple lifestyle, not an extravagant one.

Plan your expenses
Subtract your retained earnings (salary) from your farm income (gross sales target). The amount that remains is what you have available to cover this year’s expenses. If you have records of expenses from previous years, start with those. Look at every expenditure category and the amounts spent. Determine how much you will need to spend this year. Try to reduce expenses where possible. Spend your money where it will give the best return and provide the greatest benefit for your farm system. If you are starting up and don’t have past numbers to work with, get sample budgets from other growers, farmer’s organizations, or conferences. Make sure the numbers you use are from a similar-sized farm as the one you are planning. Or, to create your own budget, call suppliers for the prices of the inputs you’ll need.
Save your receipts and keep track of your expenditures. (For computer users, several financial software applications are available to ease the process.) Be sure not to exceed the amount budgeted for your expenses. If you do, try to compensate by reducing other budget items. At times, this may feel frustrating, but at the end of the year, you will be happy if you can pay yourself what you planned to – and maybe even get a bonus!

Financial planning for first-time farmers
Even if you don’t know what things cost or how much your farm can make, you can still estimate what you need to grow. Simply change the order of the 3-point planning approach:

• Plan your salary. Determine your salary or retained earnings target.
• Plan your farm income. Multiply your salary by 2. This is your gross sales target. Consult other farmers to make sure it is realistic.
• Plan your expenses. Use the other half of your gross sales and allocate it to the various expense categories in your budget.

Gross sales: the starting point
Whether you use the simplified or the standard approach, once you’ve completed this step you should have:

• A gross sales target based on your capacity to produce. (This is the starting point for your marketing plan in step 2)
• A salary target based on your personal financial needs
• A budget for your business expenses