My husband and I want to add an additional revenue source to our farm. What are some things we should consider as we make that decision? – L.K., La.

Adding another revenue source is a way to bring more diversity to the farm, helping to smooth out some of the ups and downs. You’ll want to ask business strategy questions, starting with: Where do we want to go? What are some of the best ways to get there?

The goal is to take your farm’s strengths and put them toward a need or weakness in the marketplace. When adding another revenue stream to the farm, farm leaders often step out of the commodity business that they’re used to, which is all about being efficient. It might mean moving into a business that’s more customer-oriented, such as selling seed or doing excavation work.

First, get clear on what you really want – thinking ten to twenty years out into the future. What do you really want to accomplish? It’s important to recognize that anything you do is going to have trade-offs. Putting time and money into a side business will take away resources from your core business – the farm – and maybe that’s wise, it it’s what you really want to do.

When making choices about side businesses, you need to ask if you have the passion, talent and interest in that area. For example, maybe you’re great at moving dirt and can build a business doing that in a way that doesn’t conflict with the farm.

Then, it’s about how to market it – how to price it and run the business in a way that you’re making money from it. Too often, farm leaders think if they simply use their equipment more and pick up more business, they’ll reduce costs.

Treat your additional revenue source as a standalone business. Have a profit and loss statement (P&L) for it. Make sure you understand your costs, pricing and profitability

Look at building it as a business that maybe someday, in five or ten years, you could sell to someone else. That often changes the thinking about processes, marketing and the approach to building that type of business.

--Frye is president and CEO of Water Street Solutions. [email protected]