Let me preface this by saying there is no easy way or simple path to starting a farm. If it was as basic as 5 steps, there would be a lot more successful small farmers out there. Owning a small farm is a lifestyle, it’s not just a job, and it has to be embraced by everyone who is in your life.
There are so many things to consider – and a lot of those will be variable based on your geographical location and the regulations of your city, county and state. The 5 things I’ve listed below are the basics. Some are pretty common sense, while others are factors I hadn’t thought of until I was already knee deep in dirt.
- THE LEGAL STUFF: What type of business structure are you going to set up? If you have business partners, do you have a written agreement?
There are a lot of corners you can cut and ways to save money, but not getting the proper legal advice is not one of them. When I set up the farm, I started it as an LLC. I created the LLC in October of 2013 – I didn’t know I would have to pay an entire year of taxes for those 2 months, even though I hadn’t even started farming. Had I waited until January 2014 to submit my corporate documents to the Secretary of State, I would have saved the $800 I wasted since the state operates on a calendar year and not a fiscal year. I then converted to an S Corp 5 years later for financial reasons and at the advice of my accountant. Again, more money wasted. Had I talked to an accountant before, I would have started the farm as an S Corp from day one in January.
Most government permits are based on calendar years, so if you’re adding a product and need permitting, think about whether it would be smarter financially to wait until the new year, versus paying for a whole year if you don’t need it. Depending on what you’re selling, the amount of permits can make your head spin and you’ll need an Excel spreadsheet just to track them all.
If you have a business partner, get the details of your partnership in writing. It doesn’t matter if it’s your sibling, parent, spouse or best friend. Include the percentage of ownership (if any), an exit plan, expectation for capital contributions, the role of each person, how profits will be shared, etc. If you are getting or have gotten married at some point in owning the business, have you considered a pre-nup or post-nup to protect your farm? Things change and you have to protect yourself and your farm. Remember, it’s about the future and success of the business and you need to take the personal feelings out of it. - FUNDING THE VENTURE: What access to funds do you have? Are you going to keep your existing job while you try to start the farm? Are you prepared to not earn a profit until at least your third year of operating?
When I started the farm, I was lucky enough to have a pretty lofty savings account to fund the initial investment, but I still consulted for the first 2 years of starting the farm. I did that so that I could establish some sales history and credibility to the brand before applying for loans to further grow the farm. Nobody in their right mind would have funded me – I had never farmed a day in my life or had never owned another business.
If you don’t have a savings account to privately fund the initial investment, there are some other ways to possibly source operating funds. Spend some time to explore different options and the rates. Some funds are easier and faster to get but you’ll pay for it through the higher rates. And you’re not a true farmer unless you’re cheap, so no way you want to pay for some of those insane rates.
Beginning farmer loans through USDA: These sound so great. They are built with the idea of helping farmers. A disclaimer is that I had a horrible experience with our local USDA office, so I am a little jaded about the situation and you can read more about it below. The loan terms and rates are incredibly favorable, but they require a lot of time and repetition of information to apply. Before you even apply for a USDA loan, you have to get rejected through multiple financial institutions – so much paperwork.
In 2016, I bought the land we farm on and needed some capital to expand. I began the process of applying for an operating loan through the USDA. The loan officer at the local office I was dealing with was one of the least helpful and negative people I have ever dealt with. I was convinced he didn’t want to help me and thought I was a lost cause and waste of his time. After being persistent and ignoring his lack of help, dealing with the hours of paperwork and more trips to the office than I can count, the loan was finally approved. (YES!!!!) The final step was to come for a farm visit. Two weeks before the visit was scheduled, the farm was completely flooded by multiple major storms that had blown through – it was called a 30 year flood. I received a letter in the mail rejecting the loan because the farm wasn’t viable. That was the end of the application process and I was told there was nothing they would help me with and I would have to reapply at a later date once I could establish a new 12 month plan and forecasting. I wanted the money to expand, but after the flood, I was desperate for funds. Getting that letter in the mail still remains as one of the worst days I can recall in my experience of owning the farm – other than that day a river of water suddenly appeared on the farm and wiped out everything I had.
Crowdsourcing: There are a lot of crowdsourcing options out there. Some are repayable loans, where others are contributions. Be realistic about your goal. I’ve seen some campaigns for some really brilliant people who want to do great things, but are asking so much money that people won’t donate. Whereas if you ask for a smaller amount for specific things, people will embrace it more. My sister set up a crowdsourcing campaign for the farm following the flood and I was shocked at how generous people were. It was one of the things that saved the farm, even though it required me swallowing my pride to ask for help. If you don’t want to deal with trying to get a loan through a bank or USDA, there are companies out there that offer loans with the investment being crowdsourced. You’ll pay more interest than a USDA loan, and are also higher than bank loans, but if you have good credit and business history, they’re much easier to obtain.
Private loans: If you know anyone who truly wants to invest in you, this is a great option. When I purchased the land we farm on in 2016, I pitched the idea to the people selling it to carry the loan and they accepted. It worked out better for him for tax purposes and he gave me a great rate of 4.5% for 15 years – much lower than I would have gotten from a commercial institution.
Following the flood, I had a woman approach me who believed in the farm and asked how she could help financially and offered me a 0% loan for 5 years. If you are lucky enough to find an angel investor or someone who privately funds you, do not screw them over. There were plenty of times I negotiated with PGE, my credit card companies and other accounts I had to set up payment terms when times got tough. But never once have I been late or missed a payment to these private investors because you’ll need them again and they won’t be there when you’re really desperate.
SBA loans: These are a great resource and are easier to apply for than the USDA loans. I looked into applying for one when I decided to put solar in. The rates were around 7-9%, where commercial lending was closer to 11-12%. I ended up getting a loan for the solar through a private loan at 5% (again, don’t ever be late paying a private investor because they are invaluable). - ACCESS TO LAND: Where are you looking to farm? How easy is to lease or buy land that has water? Is the land in the city or county? What regulations does the land fall under? Is it rural or urban?
I moved to Bakersfield from San Diego to start the farm because it was impossible to find land in San Diego County that was affordable, wasn’t on city water and had a well. Bakersfield is only 100 miles from Los Angeles, so it’s still close enough to a major city to be able to drive it in one day. If you are going to try to distribute your products to restaurants or to farmers markets, you need to be close to a city that is going to support you. The further away you get from metropolis areas, the less expensive land becomes, but do you really want to drive 6 hours one way every weekend to sell at a farmers market? Each city/county/state has their own regulations – so make sure to do your research before signing a lease agreement or putting down an investment on land. - HOW ARE YOU GOING TO SELL YOUR PRODUCTS: If you grow it, you have to be able to sell it.
You will rarely find me offering advice or information on how to actually farm. That’s because my background isn’t in ranch or farm management, and I still feel like I’m learning every day the actual act of farming. But when it comes to the business of farming, that’s one of my strengths. I farm in an area where there are some of the biggest farming companies in the world and there are people here that know so much about farming it’s mind blowing and inspiring. You can be an amazing farmer, but if you don’t know how to sell or market your products, you’ll be screwed. Before you start farming, establish how you’re going to sell your products and determine if you will have a customer base. Become comfortable with the idea of people telling you no or not buying from you. It’s all part of the sales process and it isn’t personal – it’s part of sales. - WHO IS YOUR SUPPORT GROUP: Do you know other small business owners? Other farmers? Do your friends or family support the idea of you starting a farm?
Don’t discredit the people around you. You need a support group more now than ever before!
I left Bakersfield when I was 18 to go to college and swore I would never, ever move back. Fast forward 16 years, and I found myself back in town with only one friend living here who I had kept in touch with. My parents and my sister were in town, but outside of them, I didn’t know farmers or small business owners I could lean on. In the beginning, it really felt like I was on a deserted island and none of my friends understood the emotional ups and downs of owning a business and they really couldn’t help me with farming. I ended up turning to YouTube. It became my support group and community. Over the years, I’ve been able to establish a core group of people who I can lean on for advice and help and regained a lot of those friendships I lost from growing up here. When you get your land, go meet your neighbors – your neighbors will become a HUGE resource for you if you have good ones. I haven’t met a farmer who wasn’t willing to offer their advice or help in some way – even if secretly they think you’re dumb for wanting to start a farm because they know how freaking hard it is.