Calling all farmers! Do you enjoy growing your own food? Ever thought about getting out of the city and running your own farm? Today, you’ll hear from successful farmers who built their business from the ground up and turned it into a $120k/month enterprise.
We recently interviewed expert farmers, Tim & Grace Lukens of Grace Harbor Farms, who began with only two goats. But their hobby soon turned into a viable business that now rakes in close to $2 million in sales each year.
They shared with us the ins-and-outs and the successes and failures of their farming business in Washington state. And, drawing on the vast experience from Grace Harbor Farms, we’re taking you step-by-step through the process of How to Start a Small Farm for Profit.
We’ll provide you with actionable answers to many business-focused questions about learning how to farm, how to secure funding for your operation, and how to get your products into stores.
Rather than building a farm from scratch, buying an existing farm can be an easier, faster way to get started, especially for those who have never worked on a farm before.
How do I start my own farm?
Starting a farm, even when done on a small scale, takes a large investment of time and energy. It requires several steps before planting seeds or purchasing livestock.
We cover the most critical aspects of starting a farm so you can avoid certain pitfalls and mistakes along the way. Whether you are learning how to start a small farm, or aiming toward commercial farming, these steps will point you in the right direction.
1. Change Your Lifestyle, Take a tour, and Gain Experience
If you grew up in the concrete jungle, then your first step is getting out of town. The idea of a farmer wandering around on his property with a wheat stalk sticking out of his mouth isn’t reality. Farming is dirty, smelly, and hard work. It’s not for the faint of heart.
To gain a better understanding, visit the different farms (see step 2) you might be interested in running and view them from a hands-on standpoint. If you don’t know a farmer, try searching online and scheduling a private tour.
Even better, ask if they’ll let you spend a whole day (or more!) with them to see how everything runs. Farming is a complicated business, so it’s vital to do loads of research on the front end so you know what you’re facing.
Education and Experience
A tour may be educational and inspirational, but it won’t cut it to run a successful farming operation. Farm managers need experience! Fortunately, there are many training programs available in the U.S.
- Rogue Farm Corps
- The Land Connection
- University of Vermont Farmer Training Program (6 months)
- New Entry Sustainable Farming Project
Learning how to become a farmer may be a slow process, but you’ll benefit from spending time on the land and working with real farmers.
2. Choose A Type of Farm Business
Before starting a farm business, you must choose what kind of small farm you want to run. There are many options, and each one presents its own pros and cons. You will need to base your choice on a balance of passion (what can I wake up every morning and be happy doing?) and good business sense.
With experience and education, the decision about the type of farm you want to run will be a bit easier. Most of your decisions will be based on location, amount of land, and budget.
Remember that while passion is key, it’s essential to consider more than your favorite crop. Understand that farming is a business, and you must know what the market can handle. For example, hemp farmers in Wisconsin hit a bottleneck in their market and ran out of buyers in 2019.
These are some types of farms to consider:
Specifically dedicated to the production of milk (typically cows or goats) a dairy farmer can have as few as one animal, a few hundred, or even a few thousand. Milk used for drinking will need special equipment to comply with government guidelines.
Whether growing fruits, vegetables, or grains, these farms are dedicated to feeding people. For a small farm, this might mean a diversified list of various crops sold locally at farmers’ markets or co-ops.
Larger farms tend to stick with only one type of crop and may rely on large corporate deals for their produce. Always consider your market and ask: What crops will grow in my location and who is going to buy them?
Poultry farms (chickens and turkeys) are typically used for meat but may also supply eggs. Many smaller farms featuring cage-free, locally produced poultry and eggs are competing with larger-scale producers.
Producing cut flowers for sale, flower farms supply their products to florists who then sell the product to an end-user. This type of small farm may also sell at farmers’ markets or to local grocery chains.
Orchard and/or Vineyard
Dedicated to growing fruit, orchards and vineyards require special types of soil and weather patterns and are only viable in certain parts of the United States. Apple orchards, for instance, plant well in many regions in the US, but grape vineyards and olive farms require the warmer climates found in the West and South.
When growing these fruits, consider your end product—a U-pick apple orchard with cider production, a vineyard combined with winemaking, or some other type of small farm market.
Also a crop farm, this type of farm grows hay (or other grains) used to feed livestock. This requires a sizeable amount of land and heavy equipment such as tractors, rakes and balers, and storage areas.
3. Make Local Connections
When you’re just starting a farm, you may not know anyone in the farm business. But in the farming industry, it’s essential to make friends.
Even with a network from your education and farming tours, reach out to local farmers who are able (and willing) to share wisdom about your local landscape. Sometimes one hill or stream can mean the difference between arable or poor soil conditions.
Use these connections to learn everything possible about your type of farm related to seasonal weather patterns, local markets, planting times, etc. Most of the time, farmers are happy to share what they know with dedicated learners.
Benefits of a Farming Community
Like many businesses, farmers function better when they have a community that supports each other. Community Supported Agriculture is a new business model for farming to consider before starting your farm.
The system connects farmers to locals who subscribe (or invest) in a farm. In return, they receive a weekly delivery of produce or other goods from the farm. And farmers regularly update subscribers on the status of the farm and invite them for on-site tours.
As a newcomer to the farming industry, you can get involved in this model to not only gain investors in your own farm, but to learn from and cultivate relationships with other local farmers.
Connect to one of these farming communities through local relationships, farmers’ markets, or by finding one online.
4. Market Analysis and Customer Base
Just growing things isn’t enough to make a farm successful.
Like any business, you must conduct a thorough market analysis and match your crop to your customer base. According to Tim Lukens, finding your customer base is one of the most critical aspects of running a viable farming business. You need to know who will buy your products.
Researching the market where you want to sell your products will give you an idea of what type of marketing budget you’ll need once your farm is up and running. If you are selling food, then keeping the market local can be beneficial, but don’t rule out the online marketplace.
The United States Department of Agriculture (USDA) is the premiere source for agricultural market research and has extensive resources available for free!
The Base May Develop Over Time In the Farming Industry
For Grace Harbor, their customer base developed over time. Since they started out with goats, the natural progression for Grace Harbor was to make soap and then lotions. They began at farmers’ markets and moved to a mall kiosk to sell their goods.
Demand continued to increase, and now over 100 stores nationwide carry their skincare products. The Lukens also began selling their soaps and other skincare products online, which is where their largest market is today.
The Washington State Department of Agriculture offers resources to help local farms market their products–providing marketing guidance, understanding of regulations and training specifically for small, local farms. Oregon has a similar program for those with a small farming business.
A quick online search will reveal assistance programs if you are starting a farm in another state.
4. Cost Estimates
Before you get too excited about making new friends and getting your hands dirty as a farmer, you need to crunch some numbers.
Remember: farming can be expensive. And the numbers will change based on a variety of factors such as your location, the type of farm you plan to run and the size.
How much money does it take to start a farm?
Because farming is also a business, it is necessary to understand exactly how much it will cost to farm. And it’s a complicated question with no general answer.
However, you can expect to spend anywhere from $600 – $10k to start a small-scale farming operation. Large-scale operations can cost well over $2 million to start!
To clarify your costs, create a comprehensive list of everything you need. Don’t be afraid to ask for help from your farmer connections on how to start a farm business.
Consider these costs of starting a farm:
Obviously, you need a parcel of land to grow your food or keep your animals. If you already have property, you could start a small farm in your own backyard. If you need to buy or rent land, factor that into your startup costs.
Requirements for equipment depend on the type of farm.
Large crops may require tractors and storage buildings, among other equipment. Dairy farms may require special milking and/or pasteurizing equipment. Animals require fences, outbuildings, and a variety of handling equipment.
If you’re making products on-site like Grace Harbor’s skincare line, you need a manufacturing space for production equipment and labeling.
It may be possible to borrow or share equipment at the beginning, which is a great way to keep your costs low. This is where those connections with other farmers continue to come into play.
Other potential cost factors:
- Soil preparation
- Cooling & Storage
- Animal & Veterinary Costs (if running a dairy or poultry farm)
If farming sounds like it will be too costly, check out some of the most profitable businesses.
How to keep track of farming costs?
You might wonder if it’s hard to keep track of your numbers. Especially if you’d rather be outdoors with your crops and animals!
To organize your financial data, try a simple bookkeeping program that can keep your small farm in top financial shape. Some farm-appropriate suggestions are QuickBooks, Easy Farm, Farmbooks.
If your operation is big enough, it could be in your best interest to find an accountant who specializes in agribusiness.
5. Create a Business Plan
To understand if your farm is viable as a business, you need a business plan. Your business plan is a “roadmap to success.” It provides information about who you are, what you want, and how you intend to get there. It’s a guideline and subject to change, but it’s a good place to start your journey towards becoming a farmer.
Fortunately, USDA offers assistance in creating a business plan along with other resources to farmers who are just starting out.
- New England Small Farm Institute’s sample business plan resources for farmers.
- North Carolina State’s organic farm planning resources.
- Kansas State Ag Manager sample business plan.
- Small farm business plan sample.
6. Legally Start Your Farm Business
To legally start your farming operation, you need to establish a business structure for legal and tax purposes. Like any business, farmers operate under one of five structures: limited liability company, sole proprietorship, corporation, partnership, or cooperative.
Limited Liability Corporation
This structure is quickly becoming popular in the farming community as it allows farmers to protect their personal assets against liabilities on the farm business. However, personal assets are not protected against wrongful action in this structure.
With a sole proprietorship, you have complete control of the business, including all profits and assets, but you are also personally liable for all debts and any other legal liabilities of the farm.
Corporation, Partnership, or Cooperative
These business structures are not typical for small farming operations. However, you can see resources on these structures here:
Permits and Licenses
Besides a business structure, your farm will require various permits and licenses based on your location and style of farm. The USDA has an online resource that maps out the federal licenses for each farm type. However, you must visit your state’s Department of Agriculture site to check on state and local licenses and permits.
7. Secure Funding
Once you complete a business plan and understand the feasibility of your agriculture business, it’s time to organize your finances. Although taking out loans to start a farm can be challenging, you may find that you need a boost to your finances by securing funding from a reliable source.
Conventional Loans, the USDA, and Other Options
Traditional bank loans and small business loans may be available for your farm business. However, without some collateral or previous business history, it may be difficult to secure.
The best resource for a small farm loan (and for all things agriculturally related in the USA) is the USDA. The U.S. government encourages farming operations of any size through their beginning farmer and rancher loans.
Also, there are thousands of local USDA service centers throughout the country available to help with any farming business needs.
Many people who don’t have startup capital may find help from family or friends, grant opportunities (make sure your business plan is solid!), or even the use of a 0% credit card.
While you might need a bit of money up front to get started, many farmers suggest that those starting a farm business avoid getting into debt.
The Lukens family learned this the hard way when a bout of E. Coli found its way into their product line. Health officials traced the bacteria back to Grace Harbor when someone became ill. The farm took a financial nosedive overnight. They tried to rely on credit cards to bail themselves out but ended up declaring bankruptcy.
After this disappointing situation, the Lukens regrouped by using only cash reserves to pay for operations. They learned a very hard lesson about avoiding debt at all costs.
Expert advice from Chris Hogan, states that debt can magnify problems, and entrepreneurs need to keep a close eye on cash flow.
9. Risk Management
With farming, there is always risk involved because of external elements. For any farming operation, it’s important to insure your crop against risk through the Federal Crop Insurance Corporation.
They offer a wide range of policies based on crop and location and provide valuable training and education courses that will help you avoid disaster.
If you find yourself in a disaster situation without insurance, it may not be a total loss. Contact the Non-insured Crop Disaster Assistance Program (NAP) to make a claim, and you may be eligible for help.
10. Begin Operations (And Work Hard!)
Once you gain some farming education, make connections, secure your funding and insurance, and have everything ready on paper, it’s time to get things up and running.
Get your land, buy your animals, sow your seeds. These details will be seasonal and time-sensitive, depending on which type of farm you want to start.
Whatever type of small farm or large farm you want to start, you must be prepared to do one thing: work hard! Animals and crops are demanding, but it can also be extremely rewarding when you learn how to run a farm.
11. Get your Products on the Market
As the Lukens family explained, it takes time to build relationships and get shops to stock your products. Grace Harbor had the fortune of getting into Whole Foods years ago, when the chain was much smaller.
But even with that existing relationship, it takes time and patience to get other stores to carry products from your farm.
Here are the steps to getting your product into a grocery store:
- Verify and acquire any permits (resources in step 6).
- Develop your Product Packaging (step 12 on Brand Building).
- Price your product for profit.
- List out potential buyers and conduct market research.
- Prepare to meet their production needs.
- Contact stores and present your product.
According to David Lukens, it may take up to six months of negotiations or more to get into larger stores or chains.
Grace Harbor had to start by building its reputation at farmers’ markets. And it’s a great alternative to help get your product into grocery stores. Once you have a trusted product, it may be feasible to get in a conversation with a locally owned shop on a low-commitment level, and then grow from there.
The USDA has a national farmer’s market directory where you can find your local market, contact the director, and negotiate your way into the market.
12. Build Your Brand
Years ago, Tim Lukens heard some important advice given by Sir Richard Branson that wasn’t about farming but applies, nonetheless.
Sir Branson inspired the idea that, if you want to start a business, you don’t have to create something completely new. You simply have to find a profitable category and then do it better than the competition; you don’t have to sell your product for less; you just have to make it better than the rest.
If you understand the market and are determined to provide a superior product and service base than your competition, then your small farm is more likely to be a success.
Use Branding to Create a Superior Product
To create a superior product, you must present that image. To do so requires investment in marketing and brand building tools like a logo, website, labels, and a social media presence.
Not every farmer has experience in building a brand, so it may be best to outsource these tasks to a freelance marketing consultant from a platform like Upwork. They’ll have experience building logo designs and helping to create a uniform brand across all of your marketing channels.
Website and Social Media
A website and social media presence is also a necessity for a successful farm business. This is another area you may choose to outsource. But don’t worry. There are a lot of resources out there to help find qualified web designers and web masters.
13. Financial Goals: How profitable is a small farm?
Just like many questions about farming, the answer of profitability depends on a variety of factors. Profit may be based on size of farm, type of farm, location, production costs, and who will buy the farming products.
Tim & Grace Lukens have been running Grace Harbor Farms since 1999 and it has now turned into a multi-million-dollar business. However, according to Tim’s son David, the profit margins for a farmer can be exceptionally low–sometimes only around 2% or so.
While it can be an excellent long-term investment, farming is not a get-rich-quick scheme. It will take some calculations to figure out how much profit you can make.
The United States Department of Agriculture provides reports on various past figures that may help a farmer estimate according to certain regions and small farm types.
14. Expand Your Farm Business
Sometimes your farm business takes a turn you didn’t plan for, as the Lukens’ story shows. Although they began with just soaps and lotions, Grace Harbor customers began asking for other goat milk products as well.
After some persuading, the Lukens dipped a toe into selling raw milk, yogurt and various other goat products. They didn’t plan it this way but, as they continued to keep up with the demands of the market, the business grew. They bought cows, added other products, and the business kept growing.
In fact, the demand became higher than what they could source with their goat and cow farming, so they now outsource some of their milk to two other local farms.
Now, as Tim’s son David looks toward taking over the business, he is looking for opportunities to extend the reach of Grace Harbor. He follows along with the idea by Wes Herman of Woods Coffee Shops—that a business should “own your backyard.” This means he wants his biggest influence and customer base to be local. And there’s no doubt that he’ll do it!
As we’ve learned from the Lukens family, farming can start out as just a hobby and then turn into a multi-million-dollar business! With some hard work and dedication, and the steps above, you can also learn to run a farm.
Conclusion: Why do some farms fail?
Having brushed up against potential failure and then bouncing back, the Lukens understand what it will take to make a farm work. Everyone knows that farming requires hard work. But Tim also believes that many small farms fail because they don’t understand the market.
One thing farmers need to understand in order to be successful is who their buyer is. Tim Lukens says:
Lukens says that a farmer needs to understand what the market potential is and understand what operating costs are. This will help to protect those who want to start a farm business from getting in over their heads.
Are you ready to get started on your own farm? Let’s go!