Friday, April 22, 2016

Managing Cash Flow for Your Farm

Cash flow statements are very useful – they may very well be the first place where a farmer will spot a trend in business performance that may benefit or harm the operation in the long run. Cash flow statements show the business’s liquidity, the ability to pay expenses as they come due.
In accounting, there are both active statements and reflective statements.

Active Statements

The cash flow statement, a record of the dollars that came into and went out of the farm, is considered an “active” statement because it is completed multiple times throughout the year. The cash flow statement should be regularly compared to projected cash flow budgets, estimated cash in-flows and out-flows that will occur in the business in an upcoming period. This helps the farm manager to identify how the cash in-flows and out-flows that were expected differed from or mirrored what actually occurred.

Reflective Statements

In comparison to the cash flow statement, the balance sheet and the income statement are “reflective” statements because they are completed on one particular day of the year in which the farm manager is able to see how the business has progressed. With careful management of cash, the farmer has power over his or her business dealings. Business owners and agricultural producers in particular need to take time to document all sources and uses of cash within a business to keep their “finger on the pulse” of their operation.

Updating Cash Flow Statements

To be effective, farmers should regularly update their cash flow statements. What does “regularly” mean? The answer to this question varies based on whether you have a very seasonal operation (such as selling Christmas trees) or a business that receives cash throughout the year (such as a dairy farm). It is recommended that new financial managers begin with a cash flow statement that has monthly intervals. Although there is a bit of work keeping the statement current, having monthly statements provides an early warning of cash deficits or surpluses. By using the cash flow statement and the cash flow budget the farmer can make well informed management decisions such as when to purchase new equipment, or when to open a line of credit to cover cash deficit periods.

After keeping track on a monthly basis for a while, you may find that quarterly or six-month cash flow statements and budgets meet your need because the funds don’t change that much month-to-month. On the other hand, if you grow and direct market fresh vegetables for example, you may need to use a weekly cash flow statement through the summer, because of fluctuations in the variety of produce sold and the demand for each item throughout the growing season.

Cash flow statements and budgets can be created for the entire farm operation or for a specific enterprise, or profit center on the farm. For example, a dairy farm might have several enterprises in addition to dairy production, such as custom work, hay sales, and maple syrup production. Analyzing a specific enterprise allows the farm manager to determine whether an enterprise costs more than it generates in revenue. An enterprise budget helps the farm manager determine whether a new enterprise might be feasible.

Article adapted from Farm $en$e©, Farm Management Tools for Financial Success.
Farm $en$e© farm financial management courses are offered every fall and winter in multiple locations in Pennsylvania. Contact Juliette Enfield or Miguel Saviroff  for more information.
The Farm $en$e© text will be available for purchase through Penn State Agricultural Publications in November 2016.

Contact Information

Juliette Enfield
Extension Educator
Phone: 814-563-9388

Miguel Antonio Saviroff, MS
Extension Educator
Phone: 814-445-8911 x144

Friday, April 1, 2016

Developing a Tasting Room Loyalty Program Part 2

By Dr Kathy Kelley--Professor of Horticultural Marketing and Business Management and Dana Ollendyke-- Extension Associate

In our previous post, we discussed what a loyalty program should do for your business--which, simply put, it should help increase your tasting room’s profits! In this post, we will discuss developing an outline for your loyalty program.

A loyalty program rewards program (photo credit: iQoncept/Dollar Photo Club).

The great thing about offering a loyalty program is that customers understand their basic function, as they most likely belong to other programs. Regardless of the type of program you offer, consider these key questions:
  • Your overall goal – what do you hope to achieve?
  • Will charge customers to join the program, limit the number of members, or will enrollment be free?
  • How will customer purchases will be recorded?
  • What questions will you ask members that will help enhance the program and their experience?
  • What purchases will “count” towards loyalty program benefits, what can members redeem points on, and would a program co-developed with a complementary business be perceived as being even more attractive?
  • How you will determine that loyalty has really been established?
  • How and when might need to end the program (and steps for doing so)?
The next post in this series will focus on your overall loyalty program goal.

Friday, March 25, 2016

Developing a Tasting Room Loyalty Program Part 1

By Dr Kathy Kelley--Professor of Horticultural Marketing and Business Management and Dana Ollendyke-- Extension Associate

If you are a winery owner, you most likely have some type of “case club” or “customer loyalty” program in place, or you have thought about implementing one at your tasting room. Whatever you call it, the intent is probably the same – you try to reward customers who purchase large quantities of wine from you in the form of a discount and/or invitation to special events.

A customer purchase of multiple bottles of wine (photo credit Efired/ Dollar Photo Club).

If crafted and administered correctly, these programs benefit the customer and the tasting room, but sometimes they do not provide the desired return on investment. This blog series will help you take a look at your current (or potential) loyalty program and decide whether your program needs to be tweaked or radically changed in order to be more successful.

What should a loyalty program do for your business? Simply put, your loyalty program should help increase your tasting room’s profits. A research paper written by Sports Loyalty International, a customer loyalty program developer, outlines some of the general benefits of creating a loyalty program.

By enrolling in a loyalty program, members: 

  • may be less likely to “defect” and purchase from another winery
  • could increase their spending over time 
  • and could be more responsive to promotions.

These factors could reduce your marketing costs since you will have information about their preferences and habits, allowing for a more targeted promotional effort. 

Additionally, customers may shift spending to “higher margin products”, and members could refer your program to friends and family based on their positive experience.

The next post in this series will focus on your business's goals for the loyalty program.

Thursday, January 21, 2016

Annie’s Project for Farm Women to be held in Northwestern PA

It’s hard to talk about passing on the farm, but in the long run it’s better to talk about it and make preparations before something unexpected happens.  Farm women can play a key role in planning successful farm transitions.  Annie’s Project is a nationally recognized educational program dedicated to fostering women’s roles in the modern farm enterprise. “Managing for Today and Tomorrow” is an Annie’s Project course geared for farm women of all ages who want to plan now for a successful transition later. 

Penn State Extension along with AgChoice Farm Credit, PAFarm Link, and Pennsylvania Women in Agriculture Network are pleased to offer “Annie’s Project: Managing for Today and Tomorrow”, a course on farm succession planning in Corry, Erie County Tuesday evenings March 1, 8, 15, 22, and 29, 2016 from 5 to 9 pm at the Corry Higher Education Council located at 221 North Center Street, Corry, PA.  

The five-session course includes hands-on activities, relevant educational materials, and the opportunity to interact with local professionals in succession planning, estate planning, retirement planning, and business planning.  Participants of all ages and experience levels will practice tasks to increase confidence in setting goals, nurturing effective family conversations, and defining the farm legacy.  Annie’s Project courses provide an opportunity for dialogue and networking with fellow farm women.

The cost of the program is $125 per person.  Pre-registration is required online or by calling 814-563-9388.  The registration deadline is Thursday, February 18.  For more information please contact Juliette Enfield, Penn State Extension – Warren County at 814-563-9388 or  

Tuesday, December 22, 2015

Choosing the Best Business Model for Today’s Farmers Market

By Juliette Enfield, Penn State Extension Educator, Warren Co

Many markets have rules and regulations for internal operations. While rules and regulations are important for setting guidelines for vendors at the market, they cannot be used when dealing with external business partners such as municipalities, businesses, or even customers.

According to the Penn State Center for Agricultural and Shale Law, more and more farmers markets are becoming legally incorporated in order to function in today’s business environment. Markets have had to become incorporated to comply with municipal ordinances, such as the requirement that all special events provide a certificate of insurance should someone get injured. Markets have also had to become incorporated in order to accept Electronic Benefits Transfer (EBT) cards at the market.
More and more farmers markets are becoming incorporated in order to function in today's business environment.
The days of informal farmers markets are no more. We are entering into an age, whether we like it or not, where liability protection is essential. Many farmers markets in Pennsylvania are not recognized as entities by the Department of State or the IRS, and therefore all liability rests on the farmers or small business owners themselves. There are two options for farmers markets seeking liability protection:

1.       Find an organization that is willing to umbrella the market

2.       Create a legal entity for the market

Designing a Business Model that Works for Your Market

Step 1: Register the organization with the Department of State

As with any business, farmers markets can have variety of different business structures. Some markets are owned by a single individual. In a sole proprietorship structure, the vendors pay their dues to the market owner in order to participate in the market. The market owner is responsible for all market activities and is personally invested in the market’s success. If there is no sole proprietor for a market, an existing business may be willing to umbrella the market, which means they assume full ownership and responsibility for the market. In this case, the market operates under the umbrella business’ name. This is a successful model if the existing business’ mission is in line with the farmers’ market mission, such as promoting healthy eating or supporting local farmers. If there is no sole proprietor, and no organization that would like to own the market, incorporation is the only other option. If a market chooses to incorporate, they must choose a board of directors (a minimum of three people) to manage the market. Incorporation also requires bylaws and articles of incorporation to be filed with the Department of State. A lawyer should be consulted for this process.

Step 2: Decide your tax status with the IRS

Depending on the structure that the farmers market chooses, a market may be a for-profit business or a non-profit business. Non-profit businesses have the option to file for tax exempt status with the IRS, which means that state and federal tax will not have to be paid on income or expenses. There are two types of tax exempt codes most commonly used by incorporated farmers’ markets- 501c3 and 501c4. A 501c3 organization must provide a benefit to the community such as providing education or benefiting a charitable cause. A 501c4 is an organization that is created for “social welfare”, meaning that the organization has come together for the benefit of its members. If a farmers market exists solely for the benefit of the individual vendors, and is not providing any education to the community or supporting a charitable cause, their activities reflect the activities of a 501c4. While both 501c3 and 501c4’s can accept donations to the organization, only the 501c3’s donations are tax deductible to the donor. Once the tax status has been obtained, the organization must file a 990 form-“Return of Organization Exempt from Tax” every year to declare their earnings, and they must keep meeting minutes on file. Since tax exempt organizations’ records are in view of the public, operations should be well recorded and transparent. The cost to file as a 501c3 or 501c4 is $400 if the gross receipts do not exceed $10,000 per year during the first four years of operations. If the market is a non-profit and is not generating much income (only generates a small amount of revenue from vendor dues), requesting 501c3 or 501c4 status may not be necessary.

Does not pay tax
Does not pay tax
Cannot lobby
Can lobby
Donations are tax deductible
Donations are not tax deductible
Must engage in charitable or educational activities
Does not have to engage in charitable or educational activities
Cost to obtain is $400 (if gross receipts do not exceed $10,000)
Cost to obtain is $400 (if gross receipts do not exceed $10,000)

Advantages of Structuring the Market

Structuring the market is becoming an obligation; however, it is not without its advantages. If the market becomes a non-profit, they are able to apply for a wide variety of grants. If the market is able to process EBT transactions, sales will increase, as will accessibility of the market goods to a larger percentage of the population. Forming a board or having a market owner could reinvigorate a market, bring in new ideas, and expand business connections in the community, all of which should lead to greater profitability for the market.

The new board of directors for the Warren County Farmers Market, Inc.
Photo courtesy Rob Andersen, Warren Times Observer
There is no one size fits all structure for Farmers Markets. The circumstances affecting each market in each community are varied. For further assistance or expertise when creating your legal structure, contact the Penn State Center for Agricultural and Shale Law. It is the lawyer’s job to think of all the potential problems that might arise in your new business structure, which will relieve the legal burden from you and allow you to focus on sales.

For more general information on non-profits, see my previous blog post An Agricultural Nonprofit Still Has to Make a Profit.

Tuesday, November 24, 2015

Should You Consider Producing Flavored Milk?

By Sarah Cornelisse, Sr. Extension Associate, Dept. of Agricultural Economics, Sociology, and Education, Penn State University

As we move into the holiday season, we traditionally see an increase in the purchases of dairy products - cheese, milk, etc.  Eggnog tends to be the popular beverage at this time of year.  However, non-eggnog drinkers may be wishing for a festive alternative.  This is where developing flavored milks may be an alternative for dairy processes to consider.

For lovers of baseball, you may have seen Missouri's Shatto Dairy capializing on the successful playoff run by the Kansas City Royals.  Shatto Dairy produced a special edition french vanilla flavored, blue-colored milk (turned just blue-colored by the time the team made it to the World Series).

Shatto Dairy isn't alone in producing flavored milk.  As consumers turn away from soft drinks and sports drinks, many are returning to milk for its nutritious properties while expressing a desire for more varied flavors beyond the normal flavor and traditional flavors of chocolate and strawberry.  We now see flavors from grape to cotton candy to black cherry to banana and blueberry.

A 2014 Mintel survey showed that 61% of respondents agreed with the statement "Flavored dairy milk is a healthy alternative to soda."  Additionally, 39% of respondents indicated that they were interested in "sophisticated" flavors for milk such as hazelnut, dark chocolate, etc..  This interest was most pronounced with the Millennial generation, with 50% indicating such interest.  As consumer age increases, the interest in flavored milk decreased, with only 12% of those aged 69 and above interested in flavored milk.

For dairies that already bottle milk, flavored milk is something that they may want to consider as a way of drawing in younger consumers interested in a healthy, but flavorful, drink.

Friday, November 6, 2015

Farm Financial Management Course kicks off in Slippery Rock

By: Michelle Kowalewski, Penn State Extension Educator, Susquehanna County

This week Penn State Extension Educators kicked off their first session of Farm$en$e in Slippery Rock, Butler County for the 2015-16 program year.  

Farm$en$e is a four session workshop that teaches farmers how to understand financial statements such as the cash flow statement, the balance sheet, and the income statement.  Course participants will learn how to use financial records to make informed financial and production decisions.  These skills will strengthen the farm business partners.  All agricultural businesses including: Livestock, Dairy, Crops, Horticulture Operations including Orchards, Greenhouses, and Vegetable Operations can benefit from Farm$en$e. 

Farm$ense will be offered across Pennsylvania in five locations during 2015-16.  Locations and dates for the program are as follows:

Butler County (Registration Closed - Program In-Progress)
Sustainable Enterprise Accelerator
165 Elm Street, Slippery Rock
Tuesdays – November 3, 10, 17, 24
10 am – 3 pm

Adams County
Penn State Extension - Adams County
670 Old Harrisburg Road, Gettysburg
Fridays – January 9, 15, 22, 29
10 am – 3 pm

Mifflin County
Penn State Lewistown
152 E. Market Street, Lewistown
Thursdays – January 14, 21, 28, February 4
10 am – 3 pm

Lancaster County
Shady Maple Smorgasbord
Vintage 2 Meeting Room
129 Toddy Drive, East Earl
Thursdays – February 11, 18, 25, March 3
10 am – 3 pm

Bradford County
Stoll Natural Resources Center
200 Lake Road, Towanda
Thursdays – March 24, 31, April 7, 14
10 am – 3 pm

Pre-registration for the program is required online by clicking on the links above or by calling 877-489-1398.  The cost of the program is $225 per farm (limited to two individuals per farm, each additional person is $90/each).  Lunch is provided at all classes.

For participants of all four sessions who have drafted a set of financial statements for your farm this program satisfies the requirements for Pennsylvania borrowers of the USDA Farm Service Agency Borrower Training requirements for both production and financial modules.   Additionally, this program qualifies for four SmartStart credits from AgChoice Farm Credit  

For more information about Farm$en$e please contact Penn State Extension Educator Juliette Enfield at 814-563-9388 or