Category Archives: Feasibility Planning

Did I Make A Profit Last Year?

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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.

Farm Transfer Can Happen Outside the Family

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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.

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

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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

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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.

UVM Extension Agricultural Business Educators are available for consultation

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If your farm, forest or maple business is under pressure to plan for COVID-19 disruption, our educators are available for business coaching and can assist with locating resources. We can help with critical business decision-making, assessing changes to markets, financial planning and other issues facing your enterprises.

Contact one of our educators by email or leaving a voicemail to make an appointment:

Farm, Forest and Maple Business Clinics

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UVM Extension Business Specialists Mark Cannella, Tony Kitsos, Chris Lindgren, Betsy Miller and Zac Smith are available to work one-on-one with farm, forest and maple businesses on their finances. Reserve a 1½ hour appointment to prepare documents that will help manage the business. Use the time to develop a balance sheet, update financial statements, review a business plan, consider changes to the business and more. Bring your financial statements, recent records and questions!

➥ 1½ hour, private meetings
➥ Nearly 100 appointments available from February – April 2020
➥ Held at UVM Extension Offices in 9 locations (Online or phone meetings are also available)
➥ FREE!

Business Clinics Information Sheet (PDF)

Contact Christi Sherlock at Christi.Sherlock@uvm.edu or 802.476.2003 to register for one of the appointments listed below.

To ensure adequate preparation, reservations must be made by the Thursday of the week before your appointment. If you require a disability-related accommodation to participate, please call at least three weeks in advance of your scheduled session.

Any Given Timber Harvest

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by Chris Lindgren, Forest Business Educator

There must be as many ways to harvest timber as there are loggers, likely more. Every approach may not be “best,” but most are acceptable.  Each logger has a different set of equipment and a different crew with a variety of experience and skills, forest landowners have varying visions and objectives, and forest managers approach forest systems and forest operations based on their sensibilities. Each of these variables factor into a logger’s approach.

Whatever the circumstances, all parties desire a positive economic outcome. At all stages of production those who add value want to be fairly compensated for their work. The win-win result hopefully applies to both the cash value of materials harvested and the impacts on the residual stand, as well. Clearly, this is not always how it works out.

When I first began business planning work with logging contractors, one of the first workshops I attended was with Steve Bick of Northeast Forests LLC. I “got” to play a game Steve called penny logging.  This game was like production and assembly exercises I had encountered at various lean trainings over the years.  The objective: given certain constraints, arrange assets and production to achieve the smoothest, most economic output. Over the years I have become keenly aware of the constraints (terrain, soil, weather, ownership, regulation) on any given timber harvest. The harvest in the video above is an example of loggers using the constraints to their advantage, creating an exciting and elegant material flow. Enjoy!

Are you on track to reach your goals this year?

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by Betsy Miller

On a recent visit to a diversified farm I noticed a whiteboard posted in the office that listed sales goals for each month.  At the end of each month actual sales were tallied and written alongside the goals set back in January.

Goal setting is an important part of the business planning process.  People commonly refer to “SMART” goals – usually meaning Specific, Measurable, Achievable, Relevant, & Timely.  Setting goals that clearly define success (or failure) make it much more likely that we will hold ourselves accountable for the plans we make.  The farm I visited has a prominent display reminding them every day where they are relative to meeting sales goals.

As important as it is to set those goals in the first place, it is equally important to review them, update them, and determine if they were met.  Mid-year check-ins can help to identify areas that might be lagging while you still have time to change course.

Don’t let your goals become like New Year’s resolutions forgotten by Groundhog Day.  Keep them fresh and check regularly to see if you are on track to reach them.

Spring Has Sprung – a Gasket!

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by Tony Kitsos

This spring has been quite a challenge, to say the least! Weather reports across the state talk about rain in some location on any given day, and that makes us a bit grumpy! We’ve waited all winter to get this year’s crops in the ground and take first cut off — and here it is June 5th with plenty of work to do on most farms.

On a recent early-June drive from Morrisville to Middlebury I saw a good many cornfields un-spread, un-plowed, and unplanted. And the window for getting a mid-May first cut in and covered was slammed shut by a month with rainfall 4” over the historical average. The New Englander’s adage of a year’s seasons being 4 months of winter and 8 months of damn poor sleddin’ has held court. It seems that if there’s less that can be done in the field, it hampers doing other projects – just don’t want to get wrapped up in anything else in case the weather breaks and it’s time to head to the fields.

All well and good, but while we wait, we need to turn our attentions to another season that’s upon us… Construction season. As if having too much water in the fields isn’t enough, there’s plenty of mud hanging around the farmstead and making quite a mess! It’s pointing out some of the high-risk areas that need to be filled in, drained, graded, or whatever is needed to minimize farmstead runoff into our waterways. Take the opportunity to find areas needing attention. Do some easy fixes. And be sure that we’re all responsible for containing runoff when and where it occurs.

UVM Agricultural Business has funds to help you assess the financial feasibility of some of the more comprehensive projects. We work independently, or with NRCS and VAAFM staff to help you find the best, most cost-effective solutions to most any water quality situation.  Give us a call at the St. Albans office at 802-524-6501 and ask for Tony Kitsos. I’m looking forward to starting the conversation.

New Vermont Maple Business Benchmark Report

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Photo Credit: Mark Isselhardt

UVM Extension has published the newest 2016 VT Maple Benchmark report. This report shows financial analysis and profitability for a group of syrup businesses that range from 2,500 to 20,000 taps. Download a copy of the 2016 report now. 

In 2016 maple market prices had dropped significantly but very high production yields for many participants resulted in stronger profitability for 2016 compared to 2015. Bulk maple producers showed a wide range of cost of production from $1.62 per pound to $2.52 per pound with an average cost of $2.00 per pound. Overall costs on a per pound basis declined in 2016 due to high production yields. Several historically high performing businesses, however, will be challenged to stay profitable as market prices drop below $2.25 per pound and/or they experience only “good-to-average” yields. This is a growing concern for maple sugar makers from 8,000-15,000 taps that rely on maple income for household income.

Many maple businesses have already or plan to diversify market channels. There is no guarantee that higher wholesale or direct market prices can compensate for the costs and time associated with serving those new customers. The reality, however, is that bulk maple businesses that drop below financial break-even levels will seek to find alternative ways to market syrup in order to stay in business. Several participating businesses in this project have demonstrated that a mixed marketing plan that includes bulk sales and some direct sales can preserve profitability and reduce the risk of uncontrollable bulk market prices.

The VT Maple Benchmark project will continue in 2018! Starting in May our business educators will begin completing 2017 financial analysis with maple sugar makers and sap only enterprises. Contact Mark Cannella for more information (Mark.Cannella@uvm.edu) . This year the project specifically needs more producers from 15,000 taps – 50,000 taps to register.

UVM Extension is also offering maple business planning assistance from May- December to Vermont sugar makers. Contact Mark  for more information on maple financial analysis and business planning assistance. Mark.Cannella@uvm.edu