As a reminder from our last post, the first step toward building a sustainable farming operation – outside of growing, of course – is to understand its finances. The basic questions that you want to be able to answer for your farm are:
How much money is coming in, and from where? How much money is being spent, and on what? In an income statement, the answers to these questions are broken out by category: revenue and expenses, and within each of these are a number of sub-categories, (the accounting term for these are ‘line items’). In this post, we’re breaking down revenue.
The categories for money coming into our farm are called revenue streams, or sales channels. You can see in the example below that our imaginary flower farm has a number of active sales channels, each split out separately.
It is important to track each of these categories, or sales channels, separately. This allows you to reflect on where you’re seeing the most success, and to use that to inform other decisions – like prioritizing how and when to spend money to support and invest in each of these revenue streams.
Just like building a healthy investment portfolio, diversifying your farming operation helps to mitigate risk. Farmers know this well: if you grow only one color of one crop, your farm is more vulnerable to changes in fashion trends, pests or disease, and you risk not being able to generate income as a result of factors outside of your control. But, if you diversify – add more colors to your offerings, or spread out your production among a number of different crops – you reduce the risk that a single event or pest could wipe out all of your income for the year.
The same principle holds true for increasing the number of sales channels beyond cut flowers. Incorporating different revenue streams into your operation can also help to smooth revenue throughout the year. Instead of all of your sales happening between June and September, you can spread out the time span over which the money is coming in. But be sure not to take on too much, too quickly!
In the chart below, the bright blue line represents cut flowers. If you sold cut flowers only from April – October – then that would be the only season that you could generate income.
The dotted line represents what happens to your total farm income by adding other revenue streams spread out across the year – your farm is able to continue producing some income year-round.
Smoothing revenue over the course of the year can help in a number of areas, including your ability to pay expenses, keep employees on staff, and pay yourself with more consistency.
Decision time! There are a number of different paths you can take now that you have all of your sales organized. It is possible that you could see relatively low sales numbers in one of these channels, and decide that it means you should not invest as much time/energy/money in that category.
But it is also possible that you will see relatively low sales in a channel but feel that there is a meaningful opportunity there and decide that it requires more of your time/energy/money. The key is ensuring that you are making an informed decision. Of course, there is a bit of a chicken-or-the-egg dynamic involved here (i.e., if you don’t invest in different channels up front, you probably won’t see sales in those channels), but once you have the information in front of you, and you are able to combine it with your understanding of your customers or your markets, many of these decisions become meaningfully easier.
As an example of one of these decisions, if you are seeing a pattern over a couple of years where you are planting three 50’ beds exclusively for dried product, and you’re only selling $300 of dried product or wreaths using that material over the course of the year, then that line item should stand out to you as something that requires some attention. Depending on your market, you might consider exploring other sales outlets for that dried product to increase those sales, or changing over some portion of those beds to a crop that generates more money for your farm.