On February 2nd, 2019, 16 farmers with a range of experience levels came together at Vallican Whole Community Center for a Farm Business Planning 101 Workshop. The workshop was prepared and given by Paul Kelly from the Community Futures Central Kootenay Self Employment Program. Paul holds a Bachelor’s Degree in Applied Business and Entrepreneurship. He has managed large retail food operations including the Kootenay Co-op, production and processing at Fieldstone organic granary, and operated a local biofuel and feed commodity business out of Winlaw.
Paul began his presentation by setting the regional labour market context. December 2018 saw the lowest unemployment since the 1970s (3.1%). He went over the difference between farming for business and hobby farming and how to determine financial needs based off of this differentiation.
Though many would say they didn’t start farming to make millions, Paul noted that making an income is important for quality of life while farming. The gross farm income of $100 000 is often required to earn $40 000 employment income. Since the Farm Family Income average is $24 000, off-farm or supplemental incomes are imperative to get small-scale farming operations off the ground and often to sustain them.
Tracey Fredrickson, an Agricultural Specialist with Basin Business Advisors, joined Paul and the group in the workshop to go over the reasons why businesses fail, which are summarized below.
Know the reasons why businesses fail
- Not doing a business plan!
- Not enough funds to live on while the business is getting going and growing.
- Assuming there are grants to help start the farm.
- Starting out with the goal of too many activities: hops, market garden, livestock. Start with one or two things chosen based on market research then add things and be innovative after you start.
- Maintaining a hobby farm mentality when operating a for-profit farm business.
- Poorly set up bookkeeping system or no system at all! Registered business need a GST number when making over $30 000 per year.
- Lack of risk and contingency planning that includes a consideration of succession planning.
- Knowing your competitive advantage and clarity of your target customers.
- Insufficient market research to understand consumer trends and needs.
- Always doing things the same way. Businesses need to look for efficiencies and track marketing efforts.
Know your market
Understanding market demand and future potential, as well as understanding who is buying your product, is essential for the success of any kind business, farming included. There are 155 000 thousand people in the entire Columbia Basin that spend an average of $500 each on their monthly food budget. This represents a food market potential in the region worth $930 million per year, at the high end. The Canadian average, in comparison, is $200 per person every month in food expenses.
The demographic who most supports local organic agriculture in the Kootenays tend to have more disposable income, are going to Farmers Markets and have higher levels of education. According to the BC Annual Household Food Spend by Channel data, 30% of budgets are spent in restaurants and 70% in the grocery store. No stats could be found for the percentage sold through Farmers Markets, though the trend is an increasing consumer demand.
Analyzing market size and share involves asking a series of questions, including but not limited to:
- What does the market need?
- What competition exists in the sector?
- What are opportunities outside of your region?
- Who is your market?
- How much can you sell and for what price?
- How will you reach customers (Farmers Markets, CSA, wholesale, distributed, hybrid)?
- How do your customers like to be communicated with?
- Can you produce and sell your product at a reasonable profit relative to the competition?
- How can you differentiate your product in order to not compete on price with your competition?
Market research is never “done”, as the market environment is always changing. Market potential is always evolving as different factors change from increased competition to natural disasters limiting inputs, crop yields or market demand. Talking to contemporaries is something that every farmpreneur should be doing. Paul suggested talking to someone in the same area with a different product, another area with the same product or someone selling to the market where you’d like to sell. This approach to looking into the market environment can be useful, as people more willing to share information if they don’t perceive you as competition but rather an industry ally.
To assist your research, StatsCan and industry associations keep excellent records on prices and production volumes. Some data sets that are available to help inform market research include sales as raw product versus value add; yields per acre, by region, growing method, soil type; average $/kg selling price through supply chain; and consumption trends per capita over time (ie. lentils, vegan, vegetarian, organic, local).
Another fundamental consideration involves asking yourself if farming is for you, since it isn’t for everyone. It’s difficult, labour intensive and income isn’t assured. Ask yourself if you have the necessary farming, communication and business skills to produce the product you’re intending to produce. If not, the skills you can offer could be very valuable to another sector or business serving the farming sector and the question then becomes, where do you fit in? Examples include land use planners, plumbers, bookkeepers, administrators, fence installers, accountants, organic inspectors and irrigation specialists, to name only a few mentioned by Paul.
Know your business plan and structure
A business plan should include all the nitty gritty details involved in considering whether or not a business idea can actually translate into a viable business. Rules and regulations pertaining to activities like livestock transport, washing and processing, a marketing plan and operating environment analysis are necessary aspects. When creating financial projections, start up and operation costs, like land use or insurance costs, as well as funding sources, should be identified. A solid plan should allow you to weigh risks with potential economic and lifestyle pros and cons and provides a decision tool whether to launch, pivot or scrap an idea.
The forms that your business takes is another integral detail of its potential for success. Sole proprietorships are the most common type; 52% of businesses in Canada (2016) are this type of structure. Other forms include partnership, private corporation, public corporation (not common), non-profit (not common) and co-op, which is great for things that get used seldom and cost a lot and require three people to form. It’s possible to start as sole proprietor and move to a corporation later in the business life cycle.
Know your dollars and cents
Some other handy resources for starting a business in BC mentioned in the workshop include bizpal.ca and onestop.gov.bc.ca (name registry). Young Agrarians also has an abundance of planning tools you can access for free here. In relation to farming and food businesses, products not related to food are GST taxable. These might include things like fresh cut flowers, bedding plants, sod, soil additives, seeds, beeswax, kombucha and kefir.
When taking on employees as a farm business, some considerations include Worksafe Coverage, a CRA Payroll Number and BC Employment Standards pertaining to the rights of employee, hours Stat pay and breaks and overtime. For those who invite wwoofers onto their farms, you’ll want Worksafe even if just having them help out every once in awhile. The Worksafe rate is determined by industry and history. Furthermore, when employing people it’s important to note whether they are an employee or contractor. The second most common audit by CRA is the payroll remittance audit, the first most common being a GST audit.
When considering startup costs, include documentation that you’re relying on to make assumptions in your appendix. Some other important tips include delegating 20% of the total cost for investment into a contingency plan. When calculating the Cost of Production, make sure to consider all possible detail from soil preparation and amendments, row coverage and propagation to weeding, irrigation, mulch, pruning, pest management, trim losses, sale weights, water losses, packaging and labour analysis. Forecasting operational multi-year cash flows is critical.
Know your sources of capital
Just like with starting any business, capital to get things off the ground with your farming business is integral. Paul reviewed some sources, including a very common one, what he considers ‘love money’ from family and friends. In terms of getting loans for starting a farming business, knowing your credit rating and working to have a score of 620 score or higher is important, in order to meet the threshold to qualify for loans. Loan sources might include Charter Banks and Local Credit Unions (Heritage Credit Union in the Slocan Valley is one) that provide opportunities for those with a viable business plan to get capital, the Business Development Bank of Canada, Farm Credit Canada, Women Enterprise and Community Investment Co-ops.
A terrific resource is the Community Futures Self Employment Program. This last program pays participants $300 per week for 48 weeks to develop a business plan. Some local farms have participated in this program to get their farm businesses going with the support of this supplementary income. Paul is one of the highly-skilled trainers on their team administering this program out of the Nelson office and details about criteria and eligibility can be found here.
Also in the Basin, the B.C. Land Matching Program offers personalized, hands-on land matching and business support services to new farmers looking for land to farm, as well as landowners interested in finding someone to farm their land. Reach out to the Columbia Basin Land Matcher for more information: firstname.lastname@example.org
A big thank-you to Paul Kelly for facilitating the workshop, Tracey Fredrickson for joining us, all the farmers who came out to learn with us, the West Kootenay Permaculture Co-op and the Columbia Basin Trust for their support.