Shared Kitchen Incubators - A Great Place to Start Your Business

By Winifred McGee, Penn State Extension Educator, Dauphin County

A new year signals the time to think about new enterprises – exploring how, and where, to begin profiting from a “family favorite” recipe. The 2011 Food Safety Modernization Act, and subsequent FDA rules, have made it a bit more challenging (but not impossible) to start a food business, in that even if state regulations allow a food product to be made in an inspected home kitchen (in Pennsylvania, referred to as a “limited food establishment”), when the food goes regional or national, FDA requires that all products be made in a commercial kitchen.

For the start-up food venture, a shared kitchen offers an affordable, safe, legal place to launch. Instead of investing a large amount of money in designing and equipping your kitchen, a modest fee allows access an established commercial kitchen on a timeslot basis.

Loading the food dehydrator at Field to Fork Ag Incubator
Photo by Katie Kinka, Southern Alleghenies Planning & Development Commission

As you begin to search, you will learn that not all shared kitchens are created equally – and knowing the type of assistance you need makes a world of difference when searching for the “right place.” For instance, you may just need a shared use kitchen – that is, a place that provides space and equipment to multiple food business owners for the commercial preparation and handling of food that will be sold. This type of kitchen will likely be accessed very affordably, because no other services beside kitchen access will be offered. In a fast-changing environment like food business, you will have to keep up on food code and the current acceptable methods of production, as well as making, marketing and selling your product if you select a shared use kitchen – but many food businesses have gotten their start in just such a place.



The next step up is a shared kitchen incubator – at which you will not only access commercial equipment and facilities, but also benefit from “supportive services,” that apply to food production and business management. There will be an on-site manager who can help you navigate the complex network of regulation, packaging and distribution to have the best opportunity for a profitable enterprise. Because of the increased level of service, the per-hour rate will probably be higher than that of a shared use kitchen – but depending on the complexity of product and marketplace, this can be money well-spent.



You may also determine the need for small-scale co-packing – allowing trained workers who are already familiar with commercial equipment and recipe conversions to make valuable contributions to your venture. One such facility here in Pennsylvania is the “Field to Fork Agricultural Incubator,” which opened its doors at the Greater Johnstown Career and Technology Center in Johnstown Pennsylvania in September 2016. Joining “Field to Fork” not only means accessing the CTC’s commercial kitchen, but allows you to enlist the knowledge and skills of culinary arts students who are working towards their ProStart Certification, and are available to work side by side with kitchen tenants. As with all shared kitchens, “Field to Fork” is focused on specific targeted groups – local value-added producers with smaller crop yields and food entrepreneurs who need a place to start. Products that can be most easily created in this kitchen are non-organic, jarred fruits and vegetables, dried foods, and baked goods. During its pilot phase, use of the kitchen will be available on a first come, first serve basis. Dry storage and cold storage are also available for a monthly fee. 



In short, shared kitchen incubators do provide the environment necessary for food businesses to start, grow and succeed – by offering not only the right equipment and environment but many services that simplify and economically provide just what is needed in today’s food industry.

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.

501c3	501c4
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.

What is Cause Marketing? Part 1

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

Have you seen advertisements like the one below (Image 1) where a portion of the profits benefits a charity or cause?  The official definition of cause marketing from BusinessDictionary.com is "joint funding and promotional strategy in which a firm's sales are linked (and a percentage of the sales revenue is donated) to a charity or other public cause.  However, unlike philanthropy, money spent in cause-related marketing is considered an expense is expected to show a return."

Image 1. With every purchase of this tea, Teavana will donate $1 to the Oprah Winfrey Leadership Academy Foundation.

Although profits should not be the primary reason for building a cause marketing program into your promotional plan, it is suggested that consumers “feel good” about spending their money on goods that support a cause.  In 2013, Cone Communications (a public relations and marketing agency) released their Social Impact Study.  Some interesting take-aways from that study include:

• Over half (54%) of U.S. consumers “bought a product associated with a cause” during a 12-month period ending in fall 2013, which was a 170% increase from 1993.
• A majority of consumers (91%) want “even more of the products and services they use to support [a] cause, and 88% want “to hear how companies are supporting social and environmental issues”.
• If you are looking to better connect with Millennial consumers via social media, they are more likely to “use social media to engage with companies around [causes]” than the general population, 64% vs. 51%, respectively.

This data is just the beginning of your research into determining if cause marketing is right for your business.  

Our next post will focus on cause marketing program development.  

Internet Tools to Help You Learn About New Markets, Part 1

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

In the marketing world, we constantly discuss strategies to increase sales, and these conversations often focus on two options – sell more to your current customers or find new ones.

Most people would agree that it is much easier to meet current customers’ needs and demands because you already have a relationship with them. Therefore, your promotion and advertising “costs” (time and money) should be less than what you might need to acquire new customers.  For this post, we will be using wine as our example.

Imagine that you are looking for new markets to sell your wine to because:

• your wine production volume has increased. 
• you feel you have exhausted the local market and have done your best to attract visitors looking for a tasting room experience. 
• and/or it is essential to investigate new opportunities.

When you first developed your tasting room business plan, you probably gave some thought as to how you would market to consumers and how you would identify potential clientele. If it has been awhile since you’ve reviewed your business plan, you will likely need to update it since your business has probably changed over the years.

 

Customers visiting a winery's tasting room (Photo credit http://bit.ly/1AyDrbl)

Perhaps you not only thought about how you would attract and meet the needs of consumers based on their generation, consumption frequency, and when they drink wine (e.g. while cooking, watching sports, at restaurants, etc), but maybe you even gave some consideration to learning about how different cultures approach wine and include (or exclude) wine from their diets.

We subscribe to several different online newsletters and journals (some of which are international) and regardless of the newsletter/journal’s origin, there is often an article about how a large brand, wine company, or group of wineries are looking to export to emerging markets. Along with providing information about current wine consumption and predictions, wine preferences, and how wine should be presented in the marketing place (cork vs. screw cap, for example), these articles discuss the population of these foreign lands in terms of growth trends, major population centers, generational distribution, major ethnic groups and races, gender breakdown, employment rate, etc. — all of which can help a business determine the viability of the market and to whom/where to market the product.

Though the goal of these articles is to provide information for targeting wine consumers, the information provided can certainly be useful for targeting consumers of any product or service based on specific racial and ethnic heritages.

But how should you begin crafting a strategy to target these consumers?
Winery tasting room owners/operators may be familiar with “who” lives in their city or county, but if you need a refresher or have never really delved into the demographic makeup of these residents, information can be found online in multiple places.

Some of our top picks include:

• The US Census Bureau website.
• Easy Analytic Software Inc (EASI) Demographics tool.
• Small Business Development Center's Geographic Information Systems (GIS) reports.

We will discuss each of these tools in more detail in future posts.

Building Your Farm Management Team - Finding a Good Accountant

By Juliette Enfield, Penn State Extension Educator, Warren Co

I recently met a farmer who said “I got into farming because I didn’t want to sit in front of a computer!”, and I’m sure she’s not alone. Oftentimes the farm accounting is at the bottom of the list of farm chores. Farm accounting can be tedious and daunting to those who are unfamiliar with spreadsheets, accounting terminology, and computer accounting software. However, the fact remains that if you are not managing your farm finances, you are unable to determine:

1. Whether or not your farm is profitable, which can only be determined from an income statement

2. Whether or not you are increasing your business’s net worth, which is evident from comparing several years’ balance sheets

3. Whether or not you are spending your money in the right place and at the right time, which is shown from a monthly or quarterly cash flow statement

Farm accounting can be daunting.

Fulfilling Legal Obligations-Tax Accounting

When I ask farmers what kind of accounting services they use for their farm businesses, most tell me they use a tax accountant once a year. Finding an accountant who is familiar with farm taxes (the Schedule F) is essential.

According to the US Internal Revenue Service, most farmers use the cash method (assessing accounts based on what is currently in the bank) for their income taxes because they find it easier to keep records this way, as opposed to the accrual method of accounting (assessing accounts based on what is in the bank after all accounts receivable and payable are calculated). This is because in agriculture expenses from one year may not generate income until the following year when the crop is sold. In other businesses, expenses and income cycle much more frequently, so the accrual method is used to report income earned in a year. Agriculture is also allowed payments for certain practices such as planting native trees and shrubs or keeping livestock out of streams by building stream bank fencing. An accounting firm that works regularly with farmers will be familiar with these incentive programs.

Some tax accountants offer auditing services for an additional fee, in which they will represent you in case of an audit.  Find an accountant who is in support of you and your business, and who you can establish a relationship with year after year. Talk to other farmers in your area for recommendations on good accounting firms to work with. If you fail to file your taxes, you will be fined and/or charged interest on the amount you owe, and it will be difficult to get access to a loan or do business at all until taxes are paid.

The Farm Bureau has a network of accountants throughout Pennsylvania that work with farmers on tax and payroll preparation, bookkeeping assistance, and financial consulting. If you are a Farm Bureau member, you may be eligible for discounted services.

Going Above and Beyond-Financial Analysis

Taking care of your taxes is a legal obligation, but analyzing your business finances is not. Tax preparation brings you one step closer to being ready to analyze your finances. Your tax forms can be used to create your income statement. Your receipts and sales records can be used to create your balance sheet and cash flow statements. Penn State Extension offers a course on understanding basic farm finance called Farm $en$e. This 4 session course helps farmers understand basic accounting terms, how to prepare accurate records, and how to use these records to better manage the farm.

Be pro-active about your farm finances.

If you are not sure that you will have time to learn how to use accounting software or you don’t feel comfortable doing your own financial analysis, you can hire a consultant. This service can range from $30 an hour to $150 an hour, depending on what your needs are and the consultant's level of expertise. The amount of contact you make with the consultant depends on the state of your business, your level of understanding of farm finance, and your commitment to making your business financially sustainable.  You could arrange meetings monthly, quarterly, or yearly. As with tax accounting, financial analysis also requires some level of expertise in your industry. This person should understand how your business operates and how it compares to others in the same industry. AgChoice Farm Credit is one source of accounting services with agricultural expertise.

In conclusion, the best place to find a tax accountant or a financial consultant for your farm business is by talking with other farmers in your area or in your ag industry. Be pro-active about your farm finances. If you don’t want to, or are not able to understand your farm’s  financial situation, hire someone to help you look at the big picture. Accounting services are different at every practice, so be sure you understand the range of services offered before signing a contract. Shop around for pricing that you can afford, as well as an accountant that you feel comfortable working with.

Building a Website for Your Small Business

Creating a useful website is a very important part of attracting customers. Most people, myself included, would find the task of creating a website themselves quite daunting and would immediately want to hire a web designer. But in doing some research of my own, building your own conventional website (meaning not overly complex or customized) may not be as difficult as it appears.

Person adding content to their website. (photo credit: morguefile.com)

To do it yourself, you can use a website builder, which is a tool that allows a user to create their own website without writing code. (Here is a list of some of the most popular website builders.)

This very useful article from Site Builder Report describes some questions to ask yourself to help determine if you should build it yourself or hire a web designer.

1. What is my budget? If you have a small to mid-size budget (which the author defines as $5,000 or less), then you should use a website builder. A competent website designer will usually cost this much or more. You will also need to pay a monthly fee for your website hosting. (Web hosts provide space on a server for your data and allow it to be available on the internet.) By comparison, a website builder like Squarespace, costs $8-$24 per month, which includes hosting.

2. I have a friend, family member, etc. who quoted me a low price. Shouldn't I use them? "Designing websites is a very complicated and involved thing. A very low quote probably means that this person "does not do web design for a living. And that’s a red flag."

3. What do I need/want in a website? "Think convention for website builder. Think customization for website designer...Use things like photo galleries, forms, paragraphs, basic e-commerce, and text." These will help you build a website that is functional without custom designing each piece.

If you really want 100% customization, then you will need a website designer.

4. Can I do it myself? "Trying to do it yourself will open you up to some of the realities of web design and will give you a sense of the constraints and challenges of web design. This will make you so much better when you try to actually hire a web designer. Plus, you may surprise yourself and realize you can do it yourself."

Hopefully this post has made you realize that hiring a website designer is not your only option; you can try to do it yourself. If you do find that you want/need a web designer, I will discuss some tips on helping you to choose a one in a future post. Happy site building!

An Agricultural Nonprofit Still Has to Make a Profit

By Juliette Enfield, Penn State Extension Educator, Warren Co

A farm can provide benefits to a community that are not always easy to measure in economic terms. A farm can keep land in agricultural production, be used as a teaching tool or be used to grow food for charity. A for-profit farm may not have the capacity or time to focus on these types of educational or charitable activities. Quiet Creek Herb Farm and School for Country Living in Brookville, PA, Lundale Farm in Kimberton, PA, and The Rodale Institute in Kutztown, PA are a few examples of nonprofit agricultural organizations in Pennsylvania.  Quiet Creek Herb Farm and The Rodale Institute focus on agricultural and homesteading education through classes, publications, and research. Lundale Farm preserves farmland by leasing land to farmers.

A farm can be a valuable teaching tool.

What is a Nonprofit?
Churches, public schools, public clinics and hospitals, political organizations, research institutes, chambers of commerce, fraternal organizations, private foundations, museums, and public charities are all nonprofits. Nonprofits contribute to society by providing social and educational opportunities that we all enjoy. The most significant differences between a nonprofit organization and a for-profit business is that the nonprofit organization does not have to pay property tax, sales tax, or corporate income tax, and they have a charitable mission that drives the organization. The tax code used by nonprofit corporations is 501c3, which you may have heard of already. A typical for-profit business will pay the IRS taxes that amount to between 15-35% of their annual revenue. However, both nonprofits and for-profits have to earn enough revenue to cover their costs in order to function. Just like with any business, the nonprofit must fill a unique niche in order to earn its revenues, and should have a business plan. To determine whether or not your organization would fill a unique niche, research what other nonprofits in Pennsylvania are doing at www.guidestar.org .

The revenue made by a nonprofit organization is used for sustaining the organization and accomplishing its charitable mission, not for distribution to employees or shareholders. The only type of nonprofit organization structure that exists in Pennsylvania is a nonprofit corporation. Corporations have a unique structure that is very different from a sole proprietorship or a partnership. In contrast to sole proprietorships and partnerships, corporations allow business owners to claim the business’s assets instead of the owners’ personal assets if debt or legal issues arise. The state in which the corporation is created assumes some liability for the business and therefore, all finances of the corporation, including salaries, expenditures and revenues must be made publicly accessible. The nonprofit corporation can work with an accountant to keep detailed financial records which they must submit to the IRS and the Department of State every year. These agencies could take away tax exempt status if the nonprofit fails to file these records or if they are generating income that does not relate to their stated mission. In addition to having a sustainable business plan, nonprofit corporations are required to have a board of directors and a fundraising plan.

The Board of Directors
The board of directors must have a protocol for voting on operating procedures for the organization as well as a president, a treasurer, and a secretary. The operating procedures, or bylaws, are voted in and agreed upon by the board. A business attorney can help with the creation of the bylaws. The complexity of the bylaws is up to the organization but they can include rules such as board meeting procedures and roles of employees.  Board directors are either employees of the nonprofit or volunteers who share a passion for the organizations’ mission. The board is responsible for keeping the organization true to its mission, and it ensures that programs and plans are implemented. Although the board of directors is a mandatory part of a nonprofit, offering additional board memberships is optional. Additional members can help to steer the organization, offer diverse skill sets, and help with fundraising by paying membership dues. Board members have to be at least 18 years old and do not have to be residents of Pennsylvania. NOLO gives some great considerations for forming a board.


The board is responsible for keeping the organization true to its mission and it ensures that programs and plans are implemented.

Fundraising
Fundraising is an essential activity for nonprofits to engage in since revenues are low and accomplishing any mission costs money. Fundraising includes soliciting donations and applying for grants. Nonprofit organizations accept donations from businesses and individuals. These donations are tax-deductible for the donor, which is an incentive to donate. Many public and private grants are available for nonprofit organizations.  Since fundraising is an important part of a nonprofit organization, there should be a fundraising coordinator or grant writer on staff or on the board. For example, if the goal of your agricultural organization is education, you may need to seek grants that will cover the costs for school children to come to your farm. Penn State Extension offers grant writing workshops. Look online for dates and locations.

Although a nonprofit organization is mission driven and tax exempt, it has to be just as competitive as a for-profit business in order to succeed. Critical components of a nonprofit include a well thought out mission and business plan, a committed board of directors, a fundraising plan, an attorney and an accountant.

For more information on nonprofit management, The Pennsylvania Association of Nonprofit Organizations offers workshops, publications, and conferences. Additional questions about forming an agricultural nonprofit in Pennsylvania can be directed to the Penn State Agricultural Law Resource and Reference Center.

When Business Plans "Take on a Life"

by Winifred McGee, Extension Educator, Dauphin Co.

At the Food for Profit workshop last week, I talked about researching and writing a business plan (as opposed to the "mental plan" for which many entrepreneurs settle).  After listening to me for a number of minutes, one of the participants asked: "How long should you plan? Couldn't trying to create "the perfect, complete plan" keep you from ever starting your business?"  What a good question!

Planning ahead is great -
but you need to get off the ladder to live!

Since my days as a Small Business Development Center consultant, I have believed that having written goals, objectives and strategies is essential for having a successful business.  However, writing the plan is just the tip of the iceberg.  If you want to have more than a "great novel," you have to progress from planning to action!  In Extension's food and farm business planning class, Your Future in Focus, we discuss 4 M's: Mapping, Move, Monitor and Modify.  The idea is, while having a plan is a great thing, it is not an end in itself.  The planning process includes a regular checkup of results, evaluation of the business' health, and revision where warranted.  Those other three M's are just as important as the initial mapping process to have a vibrant venture.

The SBA Blog Spot has a great article by Tim Berry, Founder and Chairman of Palo Alto Software and bplans.com that addresses this very subject.  Mr. Berry says that the assumptions in our plans can change very quickly in today's world, so we should see a business plan as a tool that we manage while running the business.  He suggests the following steps:

First, do a plan that has concrete specifics you can track.  Include not just the obvious numbers for sales, costs, and expenses, but also other manageable numbers like web traffic, visits, leads, presentations, calls, downloads, likes, mentions, updates, and whatever else drives your business.

Second, set a regular schedule for reviewing plan vs. actual results.  Have a monthly task to look at progress and identify problems.

Third, learn to distinguish problems of execution from changed assumptions.  If assumptions have changed, then the plan should change.... Usually, unexpectedly good results are a good reason to look at shifting resources towards the positive; unexpectedly bad results are a good reason to shift resources to correct a problem.

So, should you have a plan? Yes - absolutely.  Should business planning BE your venture? Not at all!  To do that would be similar to opening the promotional materials for a cruise, reading them, looking at the pictures and saying "Now I've been to the Bahamas!"  If we really wanted to see the Bahamas, we'd read the literature, talk to others who have visited there, contact a travel agent, and get a great wardrobe to wear on-ship as preliminaries - the point is to get on the boat!  And, having taken the trip, consider what you'd do differently in future trips.  In much the same way, business planning is not the end, but only a means, to a great (ad)venture.

How to Get Started with a Written Business Plan

by Lynn Kime, Senior Extension Associate

Business planning is an on-going practice that most agricultural businesses try to avoid. It takes time away from working in production of crops or livestock, which is what most producers enjoy. That is one reason you started farming, to work with your hands in the field or with your livestock. However, with the changing times, more producers are being asked for business plans, especially when applying for loans from your lender.

Business planning can be an eye-opening experience for most producers. It makes you realize that you are not an island in a large ocean. You will look at your industry from a several perspectives global, regional, local, and your own operation. The research you conduct to write the plan will enrich your view of your industry and your own operation.

When you think of writing a business plan, think of the process of preparing to take a family vacation. What steps do you take when planning the vacation? You get family consensus on where to go, decide on the travel method (auto, plane, bus, train), map the route or rely on your GPS unit, take the trip, and then you evaluate the enjoyment of the trip.  Was it an enjoyable vacation form the entire family? When planning your trip, you can use a vacation planner to do the work. Business planning is much the same as planning a vacation; you are providing a map of your business for the future.  You will complete the same steps as taking the trip. When developing a business plan, you can also hire someone to write the plan. However, it becomes their interpretation of the business, not yours.

Your business should be enjoyable for the entire family as all members are impacted by the business. All family members may not work within the operation but will be impacted by the business with the owner(s) being away from the family at times. During several times of the year; planting, harvesting, calving, or when livestock are having young, the owner(s) may not be home for very long. Are all family members on board for this?

When creating a written business plan, get input from all family members as the owner(s) may fall into the rut of doing things a certain way because they have always been done that way. Other members may see ways to better the business that you do not. Also, having a business team will assist in the alternative view of the business. This business team should consist of your accountant, attorney, insurance salesperson, and any trusted mentors you have.

When writing your business plan you will develop goals and objectives to accomplish those goals and research the past, present, and probable future of the industry. You will decide if your current business structure is appropriate for the present and future of the business and which structure will assist with the transition to the next generation. Your risk management plan should also be included within the plan. This assures the reader that you have considered what may go wrong and the steps you plan to take if they do.

The marketing plan is a very important section of the plan, even if you wholesale your production. It does not matter how well you produce anything if there is no market for your production.  Having a strong market for production is critical to any business. If you are retailing or direct marketing your production, who is your customer and do they want what you produce? Your market research will determine your first and best customer. Also if you are in the retail market, what are you planning to do with the percentage of production that is not the highest grade? Having a plan for your “seconds” is something to consider as not all production is fit for your best customer.

Another important section of the plan is to create the financial documents to support your plan and to evaluate the success of the business. Your financial documents should include a balance sheet, income statement, and cash flow statement. Your lender will closely review these statements when considering your loan application. These statements may be the most difficult to develop as you should construct several scenarios for each. Your actual statements may be provided by your accountant but you should try to project two to three years out if at all possible. You should also develop best and worst case scenarios. Again, this will show the reader you have considered several possibilities.

After the plan is constructed, you will write the executive summary section of the plan. This executive summary is what the lender reads first as you will use this section to determine if the business is viable and provide the supporting information. Most lenders will read the executive summary and review the financial documents to make their recommendation concerning the loan.

There are several places to learn more about business planning. The Agricultural Alternatives series contains a publication titled Agricultural Alternatives:Developing a Business Plan. Penn State Extension has a course this winter titled Your Future in Focus. The course will be offered via live webinars on Tuesday evenings beginning January 14, 2014 from 6:30 to 9:00 pm. There are also two face-to-face sessions included in the course. 

Starting a Farm? Get Prepared!

by Lynn Kime, Sr. Extension Associate

When beginning any new enterprise, many decisions need to be made prior to planting or purchasing the first animal.  These decisions require research and developing an enterprise budget to be sure the venture will be profitable.  Depending on the scope of the enterprise, a business plan will assist with the decision making process, especially if this is your first venture into production agriculture.  To make the transition easier, think about what you have a passion to do.  Having a passion for the production makes the entire process more enjoyable.  A list of topics to consider prior to beginning include:

• Marketing
• Production
• Harvesting and storage
• Risk management
• Environmental regulations
• Where to find information

 Before beginning any production, you need to know if there is a market for what you plan to produce and where that market may be.  Another marketing decision is whether you are going to market wholesale or retail.  Wholesale marketing may be the easiest, but may not provide enough income to sustain your enterprise.  Retail marketing will take more time to develop as you will need to develop relationships with potential customers or find a farmers' market that has enough traffic to market you production.  One recommendation is to start small and grow into your market.

There are usually several production options for any livestock or crop you plan to produce.  For example, if considering producing beef cattle, will you raise grass-fed or a more conventional grain and hay program?  For horticultural crops, will you use plasticulture or be organically certified?

Do you have the time to produce and harvest what you plan to produce?  Even one acre of some crops requires 30-40 hours to harvest and many more to produce.  The production will need to integrate into your proposed schedule.  Also, will you need to store a portion of the crop prior to marketing and do you have these facilities?

Any production contains risk.  You are at the mercy of the weather, markets, and inputs that you cannot control.  There are insurance products you can take advantage of to help alleviate some of these concerns.

All municipalities have regulations that may impact your plans and production.  The first step for you is to contact your local municipality to determine if what you are planning fits into their regulations.  Another place to visit is your local Conservation District office to see if there are any environmental regulations that will impact your plans.

Penn State's Agricultural Alternatives publication series is an excellent place to start your research into a new venture.  There are now 64 publications in the series and we cover many topics targeting the small-scale and part-time farming community.  These publications are between four and twelve pages long and any topic covering production of livestock or crops has a budget included.  The publications are not in-depth production guides, as indicated by the length, but are designed to allow the reader to make a better informed decision about the potential of the enterprise.

We have an extensive listing of livestock, fruits, vegetables, and farm management publications.  The farm management publications cover business start-up, business planning, marketing, and risk management topics.  These should be viewed first when considering a new farming venture.  The information contained in these publications is necessary when starting a business.  They will guide you through the process of the new venture and provide the information to allow you to become successful.  There is also a section covering where to find much more in-depth information into the topic covered.

You can access these publications here.  There is a link to a PDF file for easy printing on the web pages that do not link directly to a PDF.  I encourage you to check out the website and discover what the project has to offer.  By using these publications and the included budgets you will be better informed about the time, capital, and equipment needed for the enterprise; all issues you need to consider when starting a new venture or enterprise.

Optimizing Your Farm Machinery Costs

Do you know how much it costs to operate each piece of farm equipment you own?  It's important to know the per acre operating cost of your equipment so you can accurately determine your cost of production.  For example, to grow an acre of corn, you would need to determine the costs associated with seed, fertilizer, water, labor, and machinery and then divide by the number of acres you have.  With this value, you can thus set the sale price of your crops to ensure a profit.  The video below describes why knowing your machinery costs is so important.

Obviously, you want to use your equipment as efficiently as possible.  Using equipment that is old and outdated can be just as cost-prohibitive as using expensive, over-sized equipment that is unnecessary for your acreage.  A tool like a machinery cost calculator (like this Iowa State University "Estimating Farm Machinery Costs" calculator found under the Machinery heading) can help determine your cost per acre.  Calculators like these can help you determine fixed and variable costs, depreciation, and cost benchmarks.

A machinery cost calculator is also helpful in the decision making process of buying equipment.  Is buying new, used, or leasing your best option?  You might also determine that a new machine just isn't in your budget, but it is a necessary tool in your farm operation.  You can use your machinery cost calculator to find out if other options like sharing, renting, or custom work are feasible.


As a farm owner, have you calculated your machinery costs lately?  When buying new equipment, have you used this calculation?  Have you had to re-evaluate how you use certain machines because the cost per acre was higher than you expected?

An Easier Way to Connect With Your Customers on Foursquare

In just the past few weeks, Foursquare released it's Foursquare for Business app (if you don't know what Foursquare is, read Jeff's post from 2010).  The app allows business owners to share information with their customers and view analytics right from their smartphone.

This new app seems to be a nice and quick way to connect with your customers across multiple platforms.  From the app, the business owner/manager can create a Foursquare update and also cross-post it to Facebook and Twitter.  

Another useful feature of the Foursquare for Business app is the ability to view check-ins.  In the past, you could only view check-ins from the past 3 hours, but now you can see check-ins from the entire day. You can also easily view who your top customers are.

Also, the app will allow the manager to drive traffic to their store by posting Foursquare specials.  For example, a coffee shop manager could quickly post a picture of a latte with a caption "the next ten customers who check-in on Foursquare will get a free latte with the purchase of a muffin."  

As an ag business owner, have you used Foursquare?  If yes, how have customers responded to your Foursquare presence?  Do you think this new app will allow you to manage your Foursquare presence more effectively?

Exploring Demographic Groups-- Asian-Americans

From 2000 to 2012, the Asian-American population has jumped 51% to 18.2 million people (and is expected to rise another 13% by 2017).  The article "Asian-Americans: Fast Growth, Deep Pockets" reports that Asian-Americans also on average have "higher household incomes (28% above the U.S. median), educational achievement (50% of Asian-Americans 25 and older graduated college vs. 28% of this age group nationwide), and frequent living in nuclear households of 3.1 people vs. the 2.6 U.S. average." 

So what do these figures mean?  Asian-Americans have a large buying power and this demographic group shouldn't be overlooked.  How big?  As reported by Nielson in their "State of the Asian-American Consumer" report, their buying power is $718 billion!

How should you market your products to Asian-Americans?  As always, DO YOUR RESEARCH!  Here are some interesting facts and tips to help you get started:

1.  English is not the predominant language spoken in most Asian-American homes (77% speak a language other than English).  Explore the possibility of advertising in an Asian language.  

2.  70% of Asian-Americans own a smartphone as compared to 55% of all Americans.  Explore social media as an advertising tool.  Also, optimize your website for mobile viewing.

3.  Nielsen reports that Asian-Americans spend more time online (80 hours/month) than any other demographic group.  Make sure your website is eye-catching and easy to use.  Also, try to gain customers through the development of an interesting newsletter.

4.  When grocery shopping, Asian-Americans are less likely to plan their purchases ahead of time as compared to non-Hispanic whites.  In-store atmosphere (including product variety, signage/displays, and promos) is most appealing.  Include a variety of products in your store that appeal to Asian-Americans with signage to steer them to these items.

Take the time to explore different demographic groups and how they shop.  Is your product lineup and/or store appealing to different types of people?  If not, how can you improve your image to different shoppers? Have you tried marketing specifically to one type of demographic group?  If so, what did you do and how did your marketing campaign pay off?

Selling Valentine's Day Items--Who is Buying and How Much are They Spending?

Good news for retailers selling Valentine's gifts-- sales are expected to increase this year over last (as per a Valentine's spending survey conducted by BIGinsight), but unfortunately not by much.  Last year's spending averaged $126.03 per person while this year's projection is to only be $130.97, which is about $18.6 billion in the USA for consumers 18 years and up.

This modest increase can make us assume that consumers are being cautious with their spending this Valentine's Day.  What does that mean for ag retailers?  Consumers will probably be more price conscious when picking out their gifts whether it's flowers, candies, dinner, etc.  To lure customers in, you may want to explore special sales or deals.  If you don't want to discount your current selection, you could try offering a special package that is lower in price than your normal selection without lowering your profit margins.  For example, a chocolatier with an average total production cost of $0.50/ piece of chocolate may offer a 24 piece box of chocolates for $50 as their cheapest item.  This may be out of the price range for many consumers, but the chocolatier could gain some customers by offering a 6 piece box for $15 (and would still be making a similar profit per piece).

Since price and value will be important to consumers this year, you can expect comparison shopping to be very important.  In the BIGinsight survey, 39.3% of respondents will be shopping at discount stores, 33.2% at department stores, 26.3% will be buying gifts via online shopping, 22.9% at specialty stores, 19.6% at floral shops, 11.2% at jewelry stores, 7.5% at specialty clothing stores, and 2.6% via catalogs.

While the most money is not surprising going to be spent on a significant other ($73.75), other loved ones will be getting gifts too.  Twenty percent of Americans are projected to buy Valentine's gifts for their pets, with a total spending projection of $815 million!  Even if you aren't selling pet products currently, you might want to explore this market.  A bakery selling human goodies could add some special Valentine dog treats to their menu or a wool shop could offer heart-covered doggy sweaters.  Be creative!

The key take-away from this post is that even though consumers are being price and value conscious, it doesn't mean they aren't spending this Valentine's Day!  Explore the possibility of adding lower cost items (like the smaller chocolate box mentioned above) without sacrificing your profit margins.

Read more about Valentine's spending at nrf.com (National Retail Federation).

As an ag entrepreneur, how do you prepare for Valentine's Day?  Do you offer special promotions?  What items beyond chocolates and flowers are customers looking for?

Five Tips for Farm and Food Businesses in 2013

Take time this winter to consider last
year's results and plan for next year.

Maybe it's too strong a statement but I'll write it anyway.... What you do this winter could mean the difference between flourishing and shutting the doors.  These five tips will help you prepare for the coming year (and beyond).

1. Assess your success - One of the best things to do in January and February is analyze your records from last year.  How was production?  Did you meet your financial and business goals?  Any idea why you may not have hit your targets, whether you were under or over them?  What did you learn that would cause you to re-think what you had planned for 2013?  Maybe it's a little change; maybe it's huge.  Either way, note what it is and make the necessary changes.

Whether you sell on the floor, wholesale, or retail,
you need to consider your markets for 2013.

2. Explore your markets - No matter if you are in a commodity market (like most milk or grain) or a direct market (like a farmers' market), learn about where the markets are expected to go in 2013.  Should you lock in prices on your grains?  Should you pull out of that store and target a restaurant whose chef is interested in featuring locally-grown produce?  Should you change some flavors in your baked goods or cheeses?  Talk to neighbors, industry players, and others who have thoughts/opinions.  Learn from them.

3. Take a close look at policy changes - Will health care reform (so-called "Obamacare") affect you?  Will changes in tax laws or the Farm Bill impact how you do business?  What about this Fiscal Cliff we are hearing so much about?  Although I've not been around as long as some others may have been, I can't recall a year in which there was more uncertainty about government policies that could affect farms and food businesses.

Sarah Cornelisse teaches how
social media can be used to
market and manage a business.
We have more on that and other
topics coming up this year.

4. Learn - Take time to improve your most important production input, your managerial ability.  Attend workshops and conferences.  Take advantage of downtime to talk with friends and neighbors in the industry.  We in Penn State Extension have several workshops coming up and we regularly promote those of other organizations.  Check out our webpage (farmbusiness.psu.edu) and some recent blog posts (here and here) to learn more.

5. Embrace technology - I'm rarely without my smart phone so this one shouldn't surprise anyone, coming from me.  However, I strongly urge you to take advantage of information technology.  I believe that managing data and technology will be what differentiates successful from unsuccessful businesses, including farms and food businesses.  With data and information all around us, the advantage will go to those who manage it best and use it to make the best decisions.  Some examples:

• Take time to follow the right people on Twitter.  (BTW, I'm @jeffhyde.)  
• If you are thinking really long term, talk to a business consultant to see what they can do to help you make sense of the information that's out there.  
• Join LinkedIn and connect with people in industry, academia, and some who are like you.  
• Like some businesses on Facebook or start a page of your own.

There are so many ways, including tons in addition to these, to "listen" in today's connected world.  Believe me, "listening" is much more valuable than "speaking" on social media.  (To learn more, check out Sarah's post, "The Value of Social Media as a Market Research Tool.")  The trick is weeding out the noise.

There's always a lot to do in any business.  Make sure you attend to these things and have fun.  Love what you do!