Farming in the Foothills
Dixie Chan is a tax preparer licensed with the California Tax Education Council and has been preparing income taxes for over 25 years. Here are her tips for preparing your taxes this year.
• Take a few minutes to review your tax return from the previous tax year. This can work as a reminder of the income and expense items you reported earlier. It can jog your memory and work as a checklist for what you need to gather for this year's tax return.
• If you own a business, you should review your depreciation schedule from the prior year. Let your preparer know if any items being depreciated were sold, lost, or stolen during the year. Also include any depreciable items purchased recently like equipment or breeding livestock.
• Make sure you have all your tax documents before heading to see your tax preparer. These include your W-2 and 1099 forms, your mortgage and property tax statements, form for unemployment, earned interest, stock sales, retirement distributions, college tuition and books. Don't forget the 1095 form for your health insurance.
• An internet search can help you become more knowledgeable on tax issues specific to your operation prior to discussions with your preparer.
Join us on Wednesday, February 15th for the next Farmer-to-Farmer Breakfast with farm and ranch tax expert Dixie Chan! She will go over key tax concerns for producers such as hobby loss rules, depreciation, hiring your children, and possible income tax implications due to the anticipated repeal of Obamacare. Her husband Bryant Chan, a retired IRS investigator, will also talk about identity theft.
Bring your tax questions and enjoy a delicious breakfast with other local farmers at the Happy Apple Kitchen. Registration closes February 13th. Register at http://ucanr.edu/foothillfarmingtaxes
Video Link: https://www.facebook.com/FoothillFarming/
There is also a new Whole Farm Insurance Program offered by the Risk Management Agency. In the past many farm insurance programs have been directed at large scale or monocrop type farms. This new Whole Farm coverage is more compatible and beneficial for small or diverse farms. As an owner of a small, diverse farm, I am interested in looking into this program and learning more about how it works. What I have read so far makes me optimistic that it could be a good program for my risk management plan.
The University of California Cooperative Extension Placer-Nevada will be hosting two workshops for farmers and ranchers to learn about these programs. The first, on FSA Loans and Programs will be the topic at the next farmer-to-farmer breakfast, Wednesday, January 18, 2017, 8am-10am. Register here: http://ucanr.edu/survey/survey.cfm?surveynumber=19593
The second is about the new RMA Whole Farm Insurance Program and will be held Tuesday, February 24, 2017, 3:00pm – 6:00pm. Register here: http://ucanr.edu/survey/survey.cfm?surveynumber=19628
The intense rains are a reminder that risk management is an important part of growing a sustainable business. I look forward seeing you farmers and ranchers at these next two workshops. And in the meantime, I hope you are not washing away. Stay safe out there!
In order to evaluate accurately, you need information. In the busy season, you are too busy to set up a record keeping system. Now is the perfect time to decide what information you need and how you will gather it. As you evaluate and plan, think about what you recorded and what is missing. Make a list of records you want to keep and decide on techniques you will use to collect that data over the next season.
Here are some records that are essential in evaluating farm profitability and some ideas on how to keep them.
Expenses need to be categorized to evaluate the profitability of specific crops or enterprises. When setting up categories you will need to know if an expense is an overhead cost or a direct cost.
Overhead Costs are costs that occur roughly at the same level regardless of how much is produced (insurance, utilities, fuel, etc.).
Direct Costs are costs that change as units of production change (seed, fertilizer, packaging material, etc.).
To evaluate a specific crop, you will need to know all the costs associated with that crop. Accounting software such as QuickBooks is useful in tracking expenses. Decide this winter what your expense categories will be and what crops you want to watch/track closely.
Income should also be categorized. How will you know if potatoes are profitable unless you separate them out from your other crops? Market load lists and invoices are excellent tools for keeping track of income per crop. Require your employees (and yourself!) to keep accurate load lists.
Marketable Yield per bed/acre is an important record to keep. Your crop profitability can vary dramatically depending on yield. Decide how you will track yield. Where will you record this data?
Units Sold is different than income or yield and should also be tracked. Yield is what you produced, it may not all be sold. The actual units sold are key in evaluating demand for a product. Units sold can be tracked on your load lists and invoices.
Time/Labor is probably the most challenging record to keep. Especially owner time. Develop a strategy for how you will track your labor. Here are two ideas for tracking time. For employees, try the method used by TD Willey Farms. They use a weekly time card format where the employees write down the time they begin each new task. You can do this as an owner as well! A second idea suggested by a local farmer is to keep a planner, notebook, or electronic device and place it at the dinner table. You aren't allowed to eat until you have filled out what you did that day, including how long you spent doing it!
You can get labor estimates by sampling - where you time how long it takes to do a portion of a task. For example, how long does it take to prune one tree, then use that number to calculate how long it takes per row or acre. If you use time sampling, be sure you consider changing conditions over the season (e.g. the second or third harvest off a bed or tree). Consider time sampling several times during the season to get a more accurate average.
Remember who is doing the work. If you usually have employees move electric fencing, then you should time them doing it. If you time yourself, you may get a faster time but it won't help you in an honest evaluation of the cost of production.
Land or total acreage should be identified. Know how many trees per acre or bed feet per crop. For livestock, how much pasture and its carrying capacity. To make this simple and to help with crop planning, make a map of your fields. Unless you majored in cartography, these maps do not need to be works of art. A simple hand-drawn map works well. Use the map as a template and make copies before you fill in data that may change. On your copies, write planting dates, harvest & yield notes, amendments made, and any other records needed to evaluate your crops.
Enjoy the rainy day and the opportunity to build your business by developing a record keeping system. Don't forget to pat yourself on the back for how much you accomplished!
More on Record Keeping:
UCCE Farm Profitability Calculators: http://ucanr.edu/sites/placernevadasmallfarms/Farm_Business_Planning-_new_2/FBP_Farm_Economics/
Keeping Good Records, Cornell University: http://www.nebeginningfarmers.org/farmers/achieving-profitability/profitability-tutorial/managing-your-finances/
How to Finance a Small Farm:http://sfp.ucdavis.edu/pubs/Family_Farm_Series/Farmmanage/finance/
Harvesting Data, Foothill Farming: http://ucanr.edu/sites/placernevadasmallfarms/blog/?blogpost=21985&blogasset=24945
Farm Records, ATTRA: https://attra.ncat.org/intern_handbook/farm_records.html
Financial Records, ATTRA: https://attra.ncat.org/intern_handbook/financial.html
Picture a storybook farm: rows of vegetable crops, fruit trees, a flock of laying hens, some pigs wallowing or cows grazing, and a happy farmer with a spade, chasing stray rabbits from his crops. Sounds idyllic, doesn't it? As farmers and ranchers, we know that a “real” farm — like the ones we operate — generally looks nothing like the fantasy version that many people imagine. The work is hard, the days are long, and we don't wear picturesque overalls (well, most of us, anyway). But are we always realistic in our expectations for our own farms?
For many farmers, one of the most challenging aspects of owning and operating a farm or ranch is running it as a business. How many of us got into farming because we love business management, spreadsheets, and thinking about profitability? The very idea of “profit” can be off-putting; we want to provide wholesome food to our communities, or be good stewards of the land, or sustain family businesses and traditions. But in order to keep doing these things — to keep farming, for the long term — economic sustainability is key.
Remember that storybook farm? Fruit, vegetables, pigs, chickens — how much work will it take to keep this operation running? It may be tempting to think of a diverse farm as a profitable farm, but there are some good reasons to avoid this model.
• Increasing production of a smaller number of crops means lower production costs and greater efficiency. Say you are growing strawberries. You will need to buy or rent land; you will need a tractor, a soil test, irrigation infrastructure, farm insurance, and so on. These are fixed costs — you pay them no matter how much or how little you produce. By focusing on a few key crops, you can increase production and maximize the return on your fixed-cost investment in your farm operation.
• Narrowing your focus allows you to develop in-depth knowledge about your specific crops or livestock. It is very difficult to grow twenty things efficiently and well. But if you only grow three crops, you can really focus, learn, and improve your processes and techniques.
• Specializing in growing a few crops lets you take advantage of seasonal cycles and down time. Traditionally, most farms moved with the seasons: planting and growing in spring and summer, harvesting in the fall, resting in the winter. We all know the importance of rotating our crops and letting our soil rejuvenate under a good cover crop, but what about doing the same for ourselves as farmers and ranchers? Farming at full capacity year-round is a fast way to burn out; an “off” season allows both the farm and the farmer time to rest and regenerate.
• Running a specialized farm doesn't mean that you can't have a variety of products to offer. If you raise sheep, you could also sell sheepskins and wool, or offer breeding or grazing services. If you have a fruit orchard, you could extend the season with jams or dried fruit products. Think creatively about expanding your offerings, not your enterprises.
By eliminating less profitable crops and enterprises, you have more time, energy, and resources to focus on the things that are working best for you and your farm. A specialized operation will be more economically sustainable, more efficient, and more successful — and ultimately more rewarding in the long term.
Are you thinking specializing or scaling up your operation to increase profits? Apply for our Farm and Ranch Business Planning Course this winter!
To sign up, click here.
For another take on specialization as a key to successful farming (and inspiration for this article): In Defense Of Specialization, by Ulf Kintzel, Cornell Small Farms Program
We recently held a Farm Business Planning workshop where we showed a humorously exaggerated slide show of a city slicker turned farmer. The class was asked to identify what about the example farm indicated that it was a hobby vs. a business. The beginning farmer was based partly on my farm and was closer to my own experience than I like to admit. After evaluating the sample farm, participants were asked to identify what they were doing that was “Hobby Farming” and what they were doing that was “Farming as a Business”. The exercise was a fun and enlightening way to help identify areas they could improve to make their farms truly well run and profitable. I want to share with you some of the areas that were identified in the example farm and encourage you to relate these concepts back to your own operation. What commonalities do you see in your farm either on the business or the hobby side?
Purpose. The first thing we discussed was the reason one farms. The farmers in our story were farming for the lifestyle. Do you farm because you love to provide food to your community, because you love the lifestyle, or because you want to make a living? Guess which approach is the one for a farm that is operated like a business? You guessed it – to make a living. Of course, you love the lifestyle and providing food to your community but are those your primary reasons? Do you want to do that for free? Do you want to support your farm financially or do you want the farm to provide long term employment for you, your family and employees?
Marketing & Production. Our “Dream Farm” grew 60 crops on ¼ acre, had chickens, goats, and a donkey! They had a CSA and went to 5 markets per week! Do you grow what you love and hope it sells? Or do you investigate the marketplace, find out what is in demand, and plan to grow accordingly? In general, hobby farmers tend to put production first and marketing second while professional, business farms put marketing first and production second. Do you use your time wisely to market the products you grow? Are the outlets you use profitable for the amount of time you spend marketing and selling?
Record keeping. The farmers in our “Dream Farm” spent the money they made at the farmers' market to buy from other vendors and go out for lunch on the way home. They also lowered the price of the produce at the end of the market to try and get it sold. Do you keep records? Do you know exactly how much money you make? Do you know what percent of your income can be allotted to each crop you grow? Do you know if each crop is profitable on its own? Do you know what is losing you money and what is making you money? Do you know how many hours you work and what your employees, family, and volunteers contribute to each crop? See one of our previous blogs on record keeping by clicking here Harvesting Data. If you want to really dive in and understand where you are making or losing money, we are holding a workshop on Farm Profitability on December 9. In the workshop, you will input your data into our crop, orchard, or livestock metrics tool to help you determine the answers to these questions. You need at least one season of income and expense records in order to attend this workshop. You can register for the class by following this link: Farm Profitability Workshop
Banking. Our hobby farmers put all the money the farm made into their own bank account. Do you have separate personal and business bank accounts? Why should you separate your business and personal accounts?
Salary. Our example hobby farmers worked a total of 120 hours per week and the farm made $20,000. They spent $15,000 on the farm and kept the remaining $5000 as their salary. Equating to $1.24 per hour! Do you pay yourself a salary or do you work for free – or for whatever is leftover at the end of the season? If you plan to be doing this into the future do you want to be paid? How much? How can you make that happen?
Profit. John and Jane kept all the money left over after expenses as a salary and therefore had no profit. If your farm had a profit after all expenses and salary were paid what would you use it for? Some professional farmers use it for saving for cash flow in lean periods, capital purchases, expansion or an additional bonus or vacation. How will you plan to have a profit in your farm business?
Regulations. Do you hope to fly under the radar or do you research and follow the regulations? What are the risks of not following the regulations?
Planning. Do you have an operations plan, a business plan, a cash flow plan? Planning what needs to happen and when will go a long way in making your farm run smoothly and profitably.
Running your own business can sound overwhelming. An important reminder came up repeatedly in the class “You do not have to do everything all at once”. Being aware of good practices is eye opening and allows you to head down the right path. Going forward with blinders on is bound to land you in a ditch! So make an action plan – get out a piece of paper or write on a big whiteboard. What changes do you want to make in the next 6 months? Choose your top 3-5 action items and give yourself a deadline for completing each one. Re-evaluate at least once per year and make a new action plan for the next set of tasks.
Also, encourage yourself by acknowledging your successes. It's good to evaluate where you are now compared to where you started. Feel good about the progress you have made! And think about how much progress you will make in the next few years! Every farmer, no matter how long they have been farming can find room for improvement.
“You'll never know everything about anything, especially something you love.” ~Julia Child
My farming dream now is a vision of harvesting on a sunny day, working reasonable hours, surrounded by a supportive community. In my dream farm, I breathe a deep sigh of contentment as I bask in the knowledge that I made enough money to pay myself a living wage, stay out of debt, give small bonuses to my employees, set aside a modest amount every month for my kids college funds and my retirement, and have enough farm profit to invest in the future of the farm. That is my dream of a successful farm business.
With careful record keeping and business planning may your successful Farm Business dreams come true!