Starting an agricultural business can take many different routes, each with its own challenges and opportunities. The high capital investment and competition from more mature operations can mean long odds for launching and growing a business in agriculture. Over the years, many individuals have asked, “Is it impossible to start an agricultural business from scratch?” Some producers have been successful at starting from scratch through young and beginning farmer programs that I have been involved with around the nation. Let's examine some of the components for the recipe for success when it appears that all odds are against you.
One attribute often observed by these successful producers is that they will leverage off-farm income, wealth, or a side “gig” to launch and build a farm business. For example, one producer utilized welding, electrical, and plumbing skills, along with his wife's nursing income, to pay off a farm in seven years. They built equity in equipment, livestock, and land to leverage against the purchase of a second farm. Only time will tell if this couple goes full time in their agriculture endeavor.
Another common trait observed with new entries is sacrificing living withdrawals to benefit the business. Many new producers will use a record keeping system to follow a frugal family living budget and separate business and personal expenses.
The next element in the recipe for success is maintaining low overhead. For some, this may require sharing equipment. In one case, a young producer does the marketing and financials for a group of older producers in exchange for the use of their equipment.
Developing a written business plan that includes a projected cash flow is an important factor for success. The business plan must be monitored, with the actual results compared to projections. Some new producers will work with lenders through the Farm Service Agency’s (FSA) young and beginning farmer program for financing. This program allows for smaller down payments, longer amortizations, and lower interest rates.
Although successful producers are destined to make some mistakes, the miscues are small, manageable, and not repeated. Many new producers benefit from mentors such as peers, lenders, consultants, or other advisors that guide them on their journey.
Before starting from scratch, it is important to realize that it may take three to five years to breakeven. Therefore, patience and reasoning are critical for new producers. However, some will hit the jackpot by timing the economic cycle right, finding a niche market, or acquiring assets below market value that quickly makes them competitive.
As any teacher, lender, consultant, or supplier will tell you, it is rewarding to see these new producers start from scratch and grow over their journey to success.
Source: Dr. David Kohl, which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.