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Walla Farm Management EVALUATING
“For Farm entrepreneurs, the opportunities for a farm family business have never been greater.” (Joel Salatin, You Can Farm, Polyface, Inc 1998) Are you thinking of starting a farm based enterprise? Maybe a pastured poultry operation, a market garden, or a home bakery? The times are changing and many are saying it’s time to make a change. Whatever the enterprise, there are questions to be asked, and pitfalls to be navigated to develop a vision and see it succeed. These are questions best asked and answered by the whole family and everyone involved. This fact sheet will provide you with a brief overview of the business and production aspects to consider, and the types of questions to ask before you begin the venture. More detailed information may be found in the resources listed at the end. Personal and Family Considerations So you have a dream of farming. What does it look like? Where do you want to be? Does your family share your enthusiasm? Does it mean moving? Making lifestyle changes? Do you have the training, skills, and the experience necessary to be successful? After your new enterprise is established, what amount of family living income would you like the new enterprise to contribute annually? What special features does the family want the enterprise to possess? (level of risk, labor requirements, seasons, use of special skills or resources, etc.). Evaluating these questions ahead of time will go a long way towards maintaining your quality of life. Identifying Alternatives What opportunities show promise for your situation? The first step in the process of identifying alternatives is doing a resource inventory. The purpose of a resource inventory is to show the limitations and opportunities presented by your current situation. A complete inventory includes five areas, and a set of questions to consider for each area:
As a general rule, successful enterprises avoid resources that you don’t have and take advantage of un-used or under-used resources. Evaluating these areas beforehand will save a lot of time in missteps and will point out opportunities that were unnoticed before. Production (Can it be done?) By evaluating an enterprise you see what the production aspects are and where they overlap with your resources. Production requirements to evaluate include: Soil Water Buildings and facilities Machinery and equipment Management and labor Additional production requirements Some decisions that need to be made regarding production are: quality, production rate and business size and last but not least, regulations and liability factors. What are they? And how will you deal with them? Sources of production information include: Extension production budgets and publications, trade organizations and producers, and government offices. You should now have a clear idea whether your requirements match your resources. If your available resources cannot adequately support the enterprise, development may not be feasible. However, many production problems can be overcome by hard work, capital inputs, or ingenuity. Profitability (Will it make money?) To project whether the new enterprise will be profitable, the farm manager should complete an income statement. An income statement lists projected receipts and expenses, and then yields a value for net farm income. After the income statement is completed, a sensitivity analysis can measure the effects of changes in key factors, such as yields, prices, and profitability. For instance if you raise or lower the price of carrots 5 cents/lb., how will that affect the quantity you would have to grow to make the same profit? Financial Feasibility If you establish the new enterprise, will you have enough cash to cover operating expenses, family living needs, and debt payments? To answer this question you will need to complete a cash flow statement. Completion of a cash flow statement will enable you to determine the amount of capital needed to finance the business, as well as the repayment ability of the business if money is borrowed. If necessary, sources of financing should be identified. Once potential lending sources are identified, develop a loan proposal, which includes a business description, marketing plan, production methods, service summary, income statement , cash flow analysis, net worth statement, resume, and other supporting documents. Making a Decision (Will you start the new enterprise?) If you have found an enterprise that seems feasible, it is time to gather all family members, or others who will be affected by the final decision, to fully review and discuss the results of the evaluation. Ideally everyone will have been involved in the process, but the person responsible for the research should present the findings to the rest of the group. This presentation is good training for applying for a loan. However you make the decision, consensus or majority, everyone’s concerns need to be heard so that they can continue to express needs and opinions in the future. If you decide to go ahead with the enterprise, you can look forward to a very exciting and challenging endeavor. You should now develop an implementation plan, including a development timetable, production schedules, marketing plan, management structure, and a financial plan. Also think about how you will evaluate the progress of the new enterprise. For more information, contact WSU Extension, (509) 524-2685 or email John Fouts at fouts@wsu.edu. Resources Farming Alternatives, Northeast Regional Agricultural Engineering Service; phone: (607) 255-7654 You Can Farm, An entrepreneur’s guide to start and succeed in a farm enterprise.1998. Joel Salatin,. Polyface, Inc. Virginia. Acres USA; phone: (800)499-3201 Center for Holistic Management Farmers Markets Walla Walla Farmers Market Useful Publications Growing for Market Small Farm Today Business Assistance Port of Walla Walla WSU Farm Family Support Network United States Small Business Administration Mid-Columbia SCORE Washington State Department of Agriculture
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