Did I Make A Profit Last Year?

by Betsy Miller UVM Extension Farm Business Educator

This time of year finds the staff of UVM Extension Agricultural Business holding one-on-one budget/business coaching sessions around the state. Typically, these are a time to prepare year-end financial statements or a budget for the coming year, discuss capital investments and anticipated changes to the business, and/or do some financial analysis of the business.  This year as we help farmers prepare their year-end statements and review the past year, we are seeing many farms that received CARES Act or VCAAP funds. 

While wrapping up my work with one farmer, they commented that at least they made a profit in 2020. Technically, yes, the bottom line was black. On the one hand, they are right to feel relieved. In a very trying year when all was said and done the government funds provided the relief they needed and kept them going. On the other hand, however, this doesn’t necessarily mean that their business was profitable.

When a farm takes in a significant amount of extraordinary income—in this case relief funds— how do we interpret the financial statements to assess the performance in the fiscal year? In the case of the VCAAP funds, they were based on a farm’s “normal” operations and meant to replace the measurable impact of the pandemic on the business. In theory, the addition of these funds could help to normalize the cash flow impact and the result would be a “typical” year. Other relief funds were not as directly tied to replacing lost income and therefore the result is more nebulous.

As I’ve reviewed farm financial statements this year, I’ve concluded that when we record 2020 financials, we should report them with an asterisk and be careful not to draw too many conclusions about the health or profitability of the farm based upon them. Projecting for 2021 and beyond will be challenging as we try to predict what “the new normal” will look like. Don’t let 2020 derail you from efforts to achieve your financial goals.

New Report: The Impact of Covid-19 on Farm and Food Businesses in Vermont

A new report has been published by University of Vermont that documents how Covid-19 has impacted food system businesses in Vermont.  The report, authored by Meredeth Niles and several other researchers, is available online here: “COVID-19 Impacts on Vermont Farms and Food Businesses: Pivots, Needs and Opportunities for the Future”

Here is a summary below:

This report highlights results from a survey of Vermont farm and food businesses conducted during August and September 2020, with a total of 223 respondents. The survey was distributed via a number of non-profit, business, and state agencies in Vermont. Respondents included farms, food and farm product retail, agritourism operators, on-farm food processors, food and beverage manufacturers, nurseries/greenhouses/garden centers, and food hubs/aggregators. Overall, we find the majority of respondents experienced a COVID-19 business impact, especially in market and financial ways. We also find that the majority of respondents had business changes they wanted to make, but couldn’t because of a lack of financial resources, inadequate equipment, or personal challenges. While the majority of respondents didn’t apply for COVID-19 grants and programs, those that did were significantly more likely to agree they had the financial resources to make necessary business changes. We also identify help recovery strategies including the need for market assistance to shift to online platforms. Finally, we identify that the majority of respondents indicated perceived stress at the time of the survey, further highlighting the need for mental health resources related to COVID-19. We discuss future opportunities for recovery efforts and resilience in the Vermont food system.

Changes Coming to Our Blog

Welcome to the Agriculture Business blog, formerly Farm Viability. Our work encompasses Farm Viability but is more than just Farm Viability!

We are migrating content from the blog onto our UVM website. Some content, like many of the static resources we offer will be found on our website instead of our blog. Our blog will also be getting a facelift.

Our resources will still be accessible and we will still be posting updates on the blog about specific Ag Biz topics of importance to your farm & forest enterprises.

If there is something you are looking for that you cannot find on our new website, email us with questions.

Farm Transfer Can Happen Outside the Family

By Tony Kitsos, Dairy Business Program Manager

I recently had the opportunity to work with and advise three farm business owners in structuring the transition of their businesses to prospective buyers who were not family members or neighboring farmers. As advisors, we often hit a wall when farmers express to us that there is no “next generation coming along”; that their children and relatives are not interested in becoming farm owners. Many family members state that they have no interest in working that hard for so many hours only to have too little money to show for it. Others say that they just want to follow their own path to success, usually outside of agriculture and the family business. Such was the case for all three of these farm businesses.

Each farm took a couple of years to find a young, knowledgeable and energetic person to bring in to their thriving businesses. They wanted to show them the ropes while they had the energy and health to provide mentorship. Let’s face it… with the way values of farmland, cattle and machinery have risen over the last 20 years, it’s extremely difficult for a young farmer to walk into a bank and borrow enough money to buy the business and then survive through the first two years of operating expenses unless there is plenty of cash to start with. Lenders do not want to see a new farmer fail for lack of cash and equity. The current owner has to make a decision: Do I sell outright to another farmer or bring someone new into the business? The approach is similar to that of a typical transfer – determine a period of time to “get up to speed” on the existing business, another block of time to begin the sure and steady transfer of certain assets to the incoming owner and then an outright purchase at the end of the trial period.

In each case, the owners had set up a combination of asset transfer for revenue increases over a specified schedule. The implicit agreement was: “Make this business better and more profitable over the transition period and it will be good for both of us.” In these scenarios there is mutual benefit from the continued and increased success of the business. Careful attention must be paid to the development of a sound exit strategy – one that covers both parties in case of a falling out or a change of heart. So gather in all of your trusted advisors, lay out a plan, let them shoot holes in it, restructure, and most of all don’t give up. There is a new generation of farmer anxious to get started with the right tools for success.

Support for Farms Applying to Covid-Relief Grants

UVM Extension Farm Viability business advisors are working with the Vermont Housing and Conservation Board (VHCB) Viability network to offer assistance to all farmers with the Vermont Covid Ag Assistance Program . VHCB has an intake form here to request assistance with your grant application.

The deadline for grant applications is October 1, 2020. To learn more about the program visit the website: VT Covid-19 Agricultural Assistance Program

 A number of other programs have emerged to provide funds or support services to farms across Vermont. See the Ag Covid Program Directory below. This document includes several links to grants, FSA payment programs and educational events.

New Grants for Vermont Farm Covid-19 Business Recovery

The Vermont Agency of Agriculture, Food and Markets has announced it will begin accepting applications the week of August 17th for the new Agriculture and Working Lands Assistance grants program. This program is designed for non-dairy farmers, poultry/livestock producers and farmers’ markets. Applications will be accepted and awarded on a first come-first served basis until October 1st. VAAFM is hosting online informational webinars for applicants and service provider organization supporting the business owner application process this week and next week. See the VAAFM grants webpage to get application and grant information: Agriculture and Working Lands Assistance grants program.

The Vermont Agency of Agriculture, Food and Markets is also offering the Dairy Assistance grants program and the Agricultural Fairs grant program that support enterprises that have prior or ongoing income loss or increased costs due to the Covid-19 economic impact. Both programs have online applications available now.

Vermont Small Farm Viability and Conservation Report

UVM Extension has released a report that documents conservation adoption and economic viability on Certified Small Farm Operations. Conservation and Farm Viability on Vermont Small Farms (FBRR035) is available online. This report summarizes responses from over 170 Vermont farms to a 2019 survey. UVM Agricultural Business explores the current situations that business owners face and the major issues moving forward.

UVM Maple Development Webinar Series Starts in August

Photo credit: Mark Isselhardt

University of Vermont maple specialists will host a series of online webinars focused on business decision making and forestry practices. Learn about the best practices to integrate business management and sugarbush management for a thriving maple enterprise that targets profits and forest health.

Session information and registration is now available for sessions on August 5th, August 19th, September 2nd and September 16th. Watch our website for an updated schedule advertising webinar topics for October- December. Register now on the Upcoming Events page at www.maplemanager.org or download the program schedule here: UVM Maple Webinar Schedule

Topics will include: sugarbush leases, rental rates, business planning, tapping practices to optimize yield, tapping red maples, business entity set-up, sap-only enterprises and more. Presenters will include: Abby van den Berg (Research Associate Professor), Mark Isselhardt (Maple Specialist), Mark Cannella (Extension Associate Professor), Chris Lindgren (Forest Business Coordinator), attorneys, foresters and industry specialists.

Northern New England Dairy Webinars from UNH, UMaine, and UVM

By Tony Kitsos

On May 5th and 7th I had the opportunity to represent Vermont as part of the Northern New England Dairy Discussion webinars hosted by the University of New Hampshire’s Elaina Enzien. Extension dairy specialists Peter Erickson, Mike Sciabarrasi, Carl Majewski and Seth Wilner (New Hampshire), Gary Anderson and Rick Kersbergen (Maine) and I offered participants some sound dairy management strategies to help deal with the recent low milk prices and new pricing models. We focused on “right sizing” animal numbers, switching from 3x to 2x milking frequency, ration adjustment and using milk to feed animals on the farm as means to achieve cooperative reduction goals.

Also on the webinars were Catherine DeRonde from Agrimark, and Leon Berthiaume from DFA /St Albans to discuss the two-tier milk pricing model and what producers in each cooperative can expect for the remainder of the summer. Milk market volatility is now being driven by supply and distribution chain challenges brought on by the COVID-19 pandemic, with both cooperatives forced to take measures to reduce the flow of milk coming in to their plants.

The series proved to be timely and very popular, with over 140 participants registering for the two-day session. A link to presentation materials and the video recording of the webinars can be found HERE at the UNH website. We plan to continue the series throughout the summer, with the next session being held on Tuesday, June 16th. Find more information and register HERE.

UVM Extension Agricultural Business To Host Weekly Web Forum

For the remainder of April UVM Extension Agricultural Business will host a 30-minute web forum every Thursday at 12:30pm to keep pace with emerging COVID-19 issues faced by farm and forest businesses. Each session will include an update on market situations for our farming sectors and information on hot topics, as well as time for questions and discussion.

 Weekly Focus Topics:

  • April 16th:  SBA Emergency Loan Programs
  • April 23rd:  Cash Flow Triage for Small Business
  • April 30th: Digital Entrepreneurship and Online Marketing

Please register in advance for this web meeting.

Contact Mark.Cannella@uvm.edu to register.

Watch for updates about this series on our blog.