Starting Your Farm

So, You Want to Start or Diversify an Agricultural Business

You have developed a feasibility study for your agricultural enterprise idea and discovered you still want to begin farming. This is an exciting and stressful time as you are now planning to take a big step in your life as an entrepreneur. What is the first thing you need to do? What questions do you need answered and by whom? These are just some of the questions going through your mind and be assured that questions will continue to arise as you begin your new venture.

The first thing you need to do if you live in Pennsylvania (PA) is to contact your township and ask if you can do what you are planning on the land you own or plan to lease. The township is the most local level of government and has a say on how land is used in most counties in PA. If the township has zoning ordinances in place, they may dictate the use of the land. For example, the township may view a roadside market as business and not agriculture and have regulations negating the roadside market. You may be able to get a zoning variance but that will add to the timeline of start-up. If the township does not have zoning ordinances, your county may have a land use plan you are required to follow along with regulations governing a business or an agricultural venture.

PA does not require a business license like some states, but you do need to be sure you comply with all local regulations. Start with your township and then move on to your county to be sure you are complying with all local laws before starting the business. It is better to ask the questions first rather than have someone tell you to stop the business.

The next question should be: or, how long do I plan on being in business? The answer to this question may impact your business structure among other things. If you are starting the business later in life, you may have a defined time for the business as you are trying to build more retirement income or are supplementing retirement income. If you are early in your career, you may be thinking of retiring from the business. Either of these scenarios have some impact on the business structure.

If you are later in life, choose a business structure that is easier to dissolve or pass on to another generation. If you are early in your career, you may start out as a corporation to provide long-term business stability and asset protection. For more information regarding business structures, please see the Agricultural Alternatives: Starting or Diversifying an Agricultural Business.

Whichever scenario fits you, if you are direct marketing any portion of your product, you should consider a more formal and involved business structure than a sole proprietorship. Any agritainment enterprise may require even more levels of business structure and a good risk management plan to help protect your personal assets.

Choosing a business structure should be discussed with your accountant and attorney. They can provide the best insight to protect your personal assets which should be separated from your business assets as much as possible. You want to minimize reporting and taxes as much as possible and the business structure will assist with these goals.

You should also form a business team. The team can help advise your start-up and should consist of people you trust to keep your best interests in mind. The team should consist of your attorney, accountant, insurance salesperson, and a mentor. These people will want to see you succeed and stay in business. They should have expertise you may not have and be invaluable when you develop a business plan.

The business plan should be written as soon as you have conducted the research to start your business. A business plan will help you think through the issues impacting your start-up. The plan will consist of a history of the industry, what may be the future of the industry, marketing plan, risk management plan, and all financial projections. For more information on writing your business plan, please see Agricultural Alternatives: Developing a Business Plan.

Keep in mind that most businesses do not make a profit the first year. When developing your financial projections, you should decide how to provide for your living expenses while starting the business. If your spouse or partner can support the living expenses note that in the financials of the business plan. If not, review your asset list and determine what you are willing to invest to start the business.

You have a product or service that will be your business, but you need to ask and answer the question; who will want the product or service? This question must be asked early and often as your target market may change. Who is your first and best customer? You do not want to begin production then develop your marketing strategy when the product is ready for market or you are trying to advertise your service. My advice is to sell the product (or at least over half of your production) before planting. This will help ensure some income to cover your expenses. Developing your marketing plan early will greatly benefit your business.

The saying; "If you fail to plan, you will plan to fail" holds very true in business. You also need to plan for various scenarios, and I will cover risk management and financing in additional articles in this newsletter. It may seem that doing all of this is delaying what you want to do, which is to farm, but keep in mind that most businesses fail within the first five years and you do not want to be in that statistic. Keep visualizing the end goal and work methodically towards that goal and you will improve your chances of success.