Follow Along with our 3 part Farm Finances series with this Glossary of Key Financial Terms!
Farm Finances: An Introduction
Farm Finances: Let’s talk Revenue Sales
Farm Finances: Dig Into Expenses
Breakeven - The point at which the amount of money that you make equals the money that you spent. For example, if in calendar year 2018 you spent $10,000 on compost/labor/seeds/bulbs/equipment, and during that same year, your farm made $10,000 from wholesale/CSAs, then your farm broke even in 2018.
Cost of Sales – These are the costs of actually producing flower stems. They increase as you sell more stems and are often referred to as ‘variable costs.’
Financial Statements – There are several of these often used by businesses of any kind; they include a balance sheet (this looks at assets and liabilities), an income statement (tracks sales and expenses), and a statement of cash flows (tracks the increases and decreases in cash for a business over a period of time).
Gross Profit – Revenue minus cost of sales (see worksheet for numeric example).
Income Statement – (NOTE: This is the most important financial statement for you to develop some comfort with). The income statement is the financial statement used by a business to track the sales and expenses over a set period of time. This can be done monthly or annually (or both). It is sometimes referred to as a P&L (profit & loss statement).
Line Items – Sub-categories of items or activities that are found within a financial statement. Within Revenue on an income statement, the line items you would likely find for a farm could include Wholesale Cut Flowers, CSA/Subscription, and Pick-Your-Own.
Operating Expenses – These are expenses related to running your farm that cannot be attributed directly to production of a specific item. This is often referred to as OPEX for short, but can also be called ‘overhead’ or ‘fixed costs.’
Operating Profit – Gross profit minus operating expenses (see worksheet for example).
Revenue (or Sales) – These equivalent terms refer to the money you receive for selling products and services to customers.
Revenue Streams – Also called sales channels, revenue streams represent various sources of income for your farm – these could include wholesale cut flowers, CSA/subscriptions, farmer’s market sales, weddings and events, etc.
Upfront Capital Investment – The money that you are spending to get a farm or business running before you are generating any sales. For example, in a first-year farm, the amount of money spent on seed starting supplies, seeds, considerable bed amendments, shovels, rakes, etc. would all be considered an upfront capital investment.
About the Author
Rooted Farmers
The Rooted Farmers Team is happy to bring you content that we hope provides value. The topics covered range from farming and running a hub, to sales, marketing, and all things related to building your business, to the unique challenges faced by growers. Our philosophy in sharing this content is that we are always in a position to learn; embracing this mentality will only help us to grow, both within our businesses and personally. If there is a topic that you feel would be of value to the Rooted Farmers community, we encourage you to share your ideas with us by sending an email to: reachout@rootedfarmers.com