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.