Financial Considerations

The primary purpose of market gardening is to make a profit. Profit-making relies on thorough knowledge of what your finances are doing. First of all, there is the depreciation on any equipment you have purchased. This is simply worked out by estimating its useful life and this is divided into its cost to work out its cost per week, month or year. Other costs include rates, phone, electricity, seeds, fertilisers, labour, containers etc. All of this data is then put into a table, called a spreadsheet. You can see the sample on the facing page.

Tabulating the data like this and keeping it up to date will enable you to have a snapshot of your business's health both today and for each week in the past, so you can assess progress. It will also show you where you need to improve in order to make more profit. The easiest and least expensive way to keep these records is in a ledger, which is a book designed for the purpose. The best way, though more costly, is to do it electronically on a computer. Your business would need a reasonable turnover to justify the expense, but when it comes to forecasting the financial effect of changes (what ifs), the computer makes light work of number-crunching.

In order to make computerisation easier, we have developed sample and empty spreadsheets and useful databases that you can purchase from the writer. Just write to Organic Information Services for a current price list, stating the hardware/software combination you are using. While the writer's equipment is a Windows machine, the software we use, Excel and FileMaker Pro is also available on the Mackintosh. As well, these programs allow us to produce files that can be read by other programs, such as Lotus 1-2-3 and Approach.

Some of the factors influencing profit are:

Business Planning

You cannot expect to run a successful business without planning. While budgetary considerations are at the core, they merely tell you the results of planning. Planning is attempting to forecast what those results will be. The more effort that is put into planning, the greater the likelihood you will succeed. For instance, making a profit from fresh herbs for the Tasmanian market in the 1980s was much harder than from fresh vegetables. A little research showed that Tasmanians purchased only $2 per capita per annum of fresh herbs; a tiny fraction of what they spent on fresh vegetables. Producing fresh vegetables is by no means an assurance that you will make a profit either. In my early days, I came across a man who told me he had just made $20,000. Seeing early spring lettuces for $2.00 each in the shops, he had planted out 20,000 lettuces. By the time they were ready to harvest, the price had dropped to 10 each. At this price, it was not profitable to harvest them, so he ploughed them in as green manure.

This illustrates a number of important points to consider. The first is market research. You must know what your potential customers are likely to want, when they want it and what price they are prepared to pay when you deliver. You should also be aware of your harvest costs so that you do not make a loss merely in order to have cash flow. All of your information should be completely up-to-date due to the volatility of prices, unless you can step outside the system with some creative thinking.

Taking the lettuce and herbs example to heart, my friends Ian and Caryl Cairns came up with an innovative approach. They dismembered their lettuces, which were of bewildering leaf shape, colour and texture. They mixed the washed leaves with various herbs and received consistently high prices throughout the growing season. Even though mesclun salad mix has since become popular, the Cairns' have maintained a good profit by staying ahead. Their mesclun has improved by the addition of fresh edible flowers and other salad leaves, such as chicory. They also worked hard on improving efficiency of production and processing, so as the price has declined due to competition, their profits have been maintained.

Your business plan should take account first of who you are going to sell to, what they are likely to want and when, and how much they are prepared to pay you. Only then can you realistically decide what to grow. Nearly all growers I have met have reversed this process. They decide to grow something and then try to work out how to sell it. Sometimes this is successful, but often it is not, or competition keeps profits lower than they could have been.

Many people comment on the conservative nature of farmers and their slowness to take on new ideas. There is a reason for this. Conservative farmers stay in business. Farmers with radical ideas often fail. The ideal is to strike a happy medium. You should strive to continually try out new ideas while maintaining a firm base of the tried and true. The reason for failure with radical ideas, more often than not, is putting all one's eggs in the same basket. Just as biological diversity in the garden makes life easier, spreading the risk factor over a number of products means you are insulated from disaster if one product is an abysmal failure.

Labour Efficiency and Cost

Your own labour and that of your family is nearly always the most efficient and least costly. If, as in the case of Ian and Caryl Cairns, it's a business partnership, business income and costs are halved. A warning here, unless you are absolutely certain that your proposed business partner is someone you can work with harmoniously, you are better off going it alone. Many partnerships fail under the stresses of day to day business.

A reasonable rule of thumb is that hired labour will cost at least twice as much as your own. Hired labour brings with it the added costs of taxation, workers' compensation insurance, training, supervision and usually lower efficiency. You cannot expect the average worker to take the close personal interest in your business health as you, or your family do. If you find someone who does, you should plan on losing them when they leave to start their own business, or work out some profit share arrangement that will provide sufficient incentive to delay the inevitable.

Managing hired labour is a skill in itself, mastered by very few. Here are some guidelines. Tell people what you want done and why. If you tell people how to do something, you can stifle their creativity, which reduces their happiness and consequently their efficiency. The former approach also gives you the opportunity to discover through them, new and better methods. This does not mean you must let them continue to do a job in a less efficient manner than the one you have developed. If their method is less efficient, tell them so, keeping any note of criticism from your voice. Praise work well done. Often.

Eliot Coleman developed his Gung-hoe as a result of observing which tools his apprentices chose and how they used them.

Weather

It may come as a surprise, but there are things you can do about the weather. Not just by having a greenhouse, either. You can plan in the knowledge that seasons are often too wet, too cold, or too windy. By growing a range of crops, you can insulate yourself from excessive fluctuation of income. Being psychologically prepared, when disaster strikes, you are less likely to come apart at the seams. If you don't believe you can cope with disaster, then market gardening and farming are not your cup of tea.

Cost of fertiliser

Market demand

Prices received

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I love it! How do I pay for it?


Jonathan Sturm 2003 - 2011

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