Budgeting for the first year flower farmer
I can remember the conversation like it was yesterday…
Jessica: “Graham, I have something I want to talk with you about.”
Me: “Sure, what’s up?”
Jessica: “I want to start a flower Farm!”
Interesting…
Me: “Well, how much money is it going to take to start it? Where are you going to get the money? Where are you going to grow the flowers, and where are you going to sell them? Where did this idea come from?!”
Jessica: “I don’t know, but I do know it’s going to work!”
You can imagine my response to such a deeply thought out proposal.
Me: “LETS DO IT!!!”
Obviously, we were both heavily rooted in reality…
Only a year later I found myself asking Jessica the same question over and over again.
Me: “Business or hobby? Business or Hobby!?”
The truth is we weren’t running it like a business, we were running it by the seat of our pants. Besides the seeds that we would sow in trays to have starts in a couple months down the road, they were the only form of planning we were doing. If only we had run it like a business from the beginning: done financial planning and estimating could we have saved ourselves from countless arguments over stuff that should have been decided at the beginning.
There are so many different facets to a business plan along with many different ways to approach them. With flower farming, especially when also taking on learning the growing and designing side, there’s a lot going on during that first year of flower farming. However, being an accountant by day, I feel it is important to start with something quantifiable. Something like numbers.
I am talking about budgeting!
A traditional budget that is based off prior year data and then adapted for future estimates or goals… no…not for your first year… something more like an educated guess.
Where do you start?
What is a budget?
At a base level, a traditional budget is an activity statement with adaptations. A budget is very similar to a Profit & Loss.
In the budget for first year flower farmers (that’s more of an educated guess) I am only going to focus on three areas of activity: Sales/Revenue, Cost of Goods Sold (COGS) and G&A (general & administrative) expenses.
The budgeting process is how you determine these numbers.
With the three areas of consideration laid out let’s start with the first one, Sales/Revenue.
Sales/Revenue or Rather, “Seed Money”
Actually, for first year flower farmers, I’m going to suggest you kind of skip the idea of Sales/Revenue. I know, you’re thinking: “how do I do a budget without considering the most important part: the sales?”
The honest truth is that if you are starting from scratch there is no good way to estimate sales.
I can throw out educated guesses based on what it was like our first year or based on what other flower farmers have shared with us but those numbers are all over the place. It is hard to get anywhere close to accurate that would be of any use to you or your flower farm. Flower farming is not one size fits all and neither are the Sales/Revenue.
Well, what should you do then?
Tell me this: how much seed money do you have?
Not actually money to purchase seeds but how much money do you have to put forward to start your business on? This number really needs to be given some thought:
How much can you afford to put forward?
If you’re married, how much does your spouse feel you can put forward?
This number needs to be an amount you are willing to walk away from, something that won’t hurt if things don’t go the way you plan.
This is why I don’t think you should consider Sales/Revenue in your first year budget. Not because you wont have any sales but rather so you don’t to put yourself in a position of hardship if the sales don’t happen. Counting your chickens before your eggs hatch kind of thing.
How much then?
Maybe you already have this number figured out. Or maybe you haven’t even considered this.
For us, we put $2,000 of our own money forward the first year as well as Jessica’s Mom gave her another $1,000 to help out. In hindsight, this wasn’t a lot to start on but we were only farming about 1,600 square feet at the time so it came close to being enough. I would suggest sitting down and taking a look at your finances to figure out what that amount is for you that you can live without.
If you’re working with a smaller piece of land then you won’t need as much to start, the same as we did. However, the larger the amount of land you decide to work the more money you will need to handle it. Aside from the amount of land, depending on infrastructure and supplies you have or do not have on hand will affect the amount you may need to launch this dream.
If money isn’t that big of a concern or if you are having a hard time coming to a number and don’t want to limit yourself you can wait till the end, after you have estimated the COGS and G&A expenses and zero out your budget with your seed money.
You have your seed money that’s going to make all your dreams come true, now for the fun part: spending it!
Cost of Goods Sold (COGS)
The area to first consider are expenditures (spending of that seed money) that are directly related to the production of your product: flowers.
The idea behind COGS is that they are disbursements (payments) that you don’t have much choice but to incur them to have your final product. The final area we will cover, you will have a little more flexibility on incurring them, because of this they are referred to as discretionary spending. This does not mean you won’t have to incur them but this area shows a lot about what type of business person you are in how you choose to handle them.
What type of disbursements will be classified as COGS and how do you estimate them?
I have listed all of the common ones in the Excel spreadsheet that I have provided, but to name a few quick ones: seeds, tuber, bulbs, live plants, soil & amendments and market & floral design supplies.
The spreadsheet does not provide all the COGS accounts that you will ever run into but rather the ones that you will see 90% of the time. As always, I recommend working with a licensed CPA to refine your accounts but this is getting too far ahead and in case you missed it, check out our Bookkeeping for the Flower Farmer blog here.
Now, how do you come up with these numbers to guess how much you will spend on these areas your first year?
Let’s begin with your growing space.
How much area are you working with?
Once you know this you can start to solidify some rough ideas of what you might need. Let’s look back on Sierra Flower Farm’s first year. We were working with 1,600 SqFt of space, so that would be the equivalent of about seven of our current rows on our new property (3.5’ x 45’ with 1.5’ for walking spaces).
How many plants could we fit in and with how many successions?
If we averaged 8” spacing for the plants we could grow about 340 plants per row so 2,380 max plants at any given time. Now with that info you can start selecting plants varieties and planning out successions to figure how much in seeds, tubers and bulbs you might spend. With that same information we can guess that you would need a few yards of compost (we pay about $40 a yard) to amend to soil as well as a couple bags of pre-plant fertilizer to go in as well.
Take some time and start puzzling your way through what you will need to have to keep your growing area active and from there, keep pulling out associated costs.
You are never going to get 100% accuracy here. All you are trying to do is get a good foundations to start from so you aren’t caught off guard. Go through each COGS account and try and consider expenses related to each.
This area really is the meat and potatoes of the budget and will take the most time and energy to figure out. Be patient, take your time and don’t try getting it done in one sitting. Start putting down items that you know and consider doing more research on some of the areas that you aren’t too familiar with or haven’t considered.
We have a lot of other great blogs with topics on these areas to help you figure things out, that will help you better estimate. If you are looking for some help on row layout, watch our video on that here.
General and Administration Expenses (g&a)
You now have an idea of what it is going to cost to grow your product and some associated cost to get it into customers hands.
How about everything else related to running a business?
How to you get potential customers to find out about you?
How do you stay in compliance with local agencies and governments?
Do you want to belong to cool growers’ clubs?
All these questions help you get closer to those answers that you need to have to estimate the cost associated with running a business.
This is where any and every expense that isn’t a COGS will go. The best way to tackle these are to refer back to the example activity report that I have given as well as the cheat sheet that helps you better understand what expenses make up the related accounts. With a lot of these it’s going to be hard to foresee the related expenditures that you will have in the future. Do your best to give a good educated guess but don’t let it stumble you.
That was easy, right?
If you are sitting there scratching your head lost in all the potential expenditures don’t worry! I have made a cheat sheet based on a few years of our P&L that can help you get a good head start.
I took our COGS and G&A Expenses and broke them all down based upon percentage that we normally spend. All you have to do if determine your “Seed Money” amount and put that into the spreadsheet and from there it will give you a rough idea of how you can expect that money to follow out.
Remember, this is a very rough estimate and should only be used as a starting point, you should take it from there and adjust it for you business and your plans.
Putting your Flower Farm’s Budget Together
So what do you do with all this information you now hold?
How do you put the information to use?
There is a definite main takeaway that I hope everyone can get from doing this practice but first let's talk about some secondary points to get from this.
Use your budget as a road map for your first year farming. As with any map there is more than one way to your intended destination. Be flexible with the numbers that you have put down but know that the numbers are finite. You will have to stay within the boundaries of them. If all the sudden you start considering buying $500 in seeds but it would amount to more plants than you could grow in two years and would push you 100% past your estimated amount, now is the time to pull yourself back to reality. But on the other hand, don’t be afraid to go a little beyond what you had planned.
Splurge a little and get the more expensive… I mean, more unique varieties of ranunculus that customers will awe over… even if it pushes you 20% past the amount you had budgeted for corms. Especially in your first year of flower farming, there will be times when you will be faced with an expenditure that you hadn’t even considered. Adapt to the situation. Figure out if you can add it on top of your budget or if you need to adjust something else down to make it fit in.
Always make sure to add it to your budget to be considered next year.
Your budget can be a powerful tool throughout the year and help you keep sight on what you wanted and want out of your farm especially if you want it to be a business and not a hobby.
You might be asking yourself right now “wasn’t that the main takeaway? Didn’t we just look at everything a first year budget can do?” I would say what we just went over is what a budget can do for you throughout the season but the most important part is what a budget can do for you before you even sow your first seed.
Hobby or Business?
My hope is that this budget helps you answer one question:
“Can I financially start flower farming?”
This can seem so simple and you might already be emotionally attached to the idea but few things are more stressful than financial problems. It is difficult to pull yourself out of the emotional high that you can get from dreaming and planning something that you are passionate about. To launch into a flower farming business you will need to be able to pull yourself from the dream and look at the reality of the budget numbers.
If we had done this before we started down the road of flower farming we could have saved ourselves many disputes and much heartache. Not that we would have abandoned starting a flower farm but we would have made some different financial decisions. Knowing if you can financially take on the cost of upstarting a flower farming business and working within the boundaries of your budget will get you to a tremendous start.
This is one of our first year flower farming business regrets and also why we put together this post to help others.
What do you do if you discover that it's going to be more than you have funds for?
Give up and go play some video games with your free time?
No! Adjust! Work that budget!
Figure out:
What you can cut, no pun intended
What you can alter
What you can substitute
Maybe you can’t do it to the scale that you had first hoped but that doesn’t mean there isn’t a starting point for you. Flower farming is not one size fits all and each person is at a different launching point whether it is the amount of land, experience or finances. Having a budget will not tell you “no” on being able to flower farm but will rather give you a good snapshot and financial roadmap to do so in a successful manner.
Lastly this budget is a tool. Don’t try and use your budget beyond its intended purpose. The budget isn’t a crystal ball, you aren’t peering into the future. Things will change and unforeseen circumstances will happen, that’s just life!
At best I would say that the budget can be 80% accurate if you put a lot of work into it. On the other hand, the budget doesn’t have to be that accurate to be effective and useful. Don't cut this too close with razor thin margins, you will set yourself up for disappointment, give yourself some breathing room.
As always with anything business/accounting related there are many ways to approach this and infinite opinions. I have presented something that makes sense to me, something that we have used and I have helped other small businesses use to get a feeling for how their first year business can go.
I hope you found this blog interesting, helpful and that you can make use of the information in it to have a successful first year of flower farming!
As always, we are looking forward to helping you hand blooms soon!
- Graham & Jessica