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What is cash flow?

Urban Ag home | Table of contents Another important economic measurement is cash flow. Cash flow is closely related to profitability but there are significant differences. While profit is concerned with the income versus expenses for a production period such as a calendar year, cash flow is...

How to improve farm profits?

Urban Ag home | Table of contents Generating profits should influence most decisions as a farm manager. Many things affect the level of profit. This, in turn, determines remuneration for the operator’s management & labor, the growth potential of the farm business, and the ability to pay off...

Calculating profits for taxes

Urban Ag home | Table of contents An income statement is the one financial form that is required by the Internal Revenue Services for all farm businesses. It is used to calculate profit for tax purposes. The IRS version of an income statement is Schedule F (Form 1040) Profit or Loss From Farming (...

Example farm income statement

Urban Ag home | Table of contents The example farm is a part time small urban farm where the owner works nights and weekends on a 10,000 square foot plot (a little smaller than ¼ acre) in the city. The plot is intensely cultivated with a variety of vegetables produced in high tunnels and raised...

Historical versus projected income statements

Urban Ag home | Table of contents Income statements should be constructed for both historical analysis of farm profits and projecting future profits. The past year is always a good baseline for projecting profits for the next year. Figure 1 illustrates an income statement for an example farm. It...

Using an income statement to calculate and project profit

Urban Ag home | Table of contents To calculate your farm profit from the past year or project the profit for the coming year, you summarize income and expenses on an income statement or projected income statement, sometime called profit-and-loss statement or statement of activities. The income...

What is enterprise profit?

Urban Ag home | Table of contents We have discussed profits in relation to the whole farm. Since you likely produce several agricultural products, you can view each different crop or livestock enterprise as a separate profit center so you can determine which enterprises contribute more to the...

Calculating the profit

Urban Ag home | Table of contents When you subtract out variable/operating, fixed/overhead, and depreciation expenses from the income, the result is profit. With the profit, you can pay yourself (If you haven’t already expensed a salary for yourself), grow the business, and pay down debt principal...

Depreciation

Urban Ag home | Table of contents Producing crops and livestock often requires machinery, structures, and other capital items which add to the expenses of the farm. Since these items last for several years, you do not subtract the entire cost for use of equipment and structures in the year they are...

Fixed/Overhead expenses

Urban Ag home | Table of contents You incur some fixed/overhead expenses that are not directly associated with the amount of agricultural products you produce. For example, expenses like property taxes, insurance, loan interest, utilities, and office supplies do not vary with the amount of crops...

Variable/Operating expenses

Urban Ag home | Table of contents Variable/Operating expenses are directly tied to producing crops and livestock and usually increase or decrease proportionately to the increase or decrease in production. For example, if you decide to produce more crops, you will need to purchase more seed,...

Calculating expenses

Urban Ag home | Table of contents The other factor that affects profit goals is expenses. As mentioned before, expenses are associated with the inputs required for producing agricultural products. Income minus expenses equals profit. Expenses can be described in different ways but here we will...

Setting income goals

Urban Ag home | Table of contents Income is dependent on the amount of each agricultural product that you plan to produce and sell, as well as the market price for those products. So as you plan production and marketing you should also be setting your income goals. A good systemized approach for...

Setting profit goals

Urban Ag home | Table of contents Sometimes farmers focus on production and marketing and at the end of a season hope that there is a sufficient profit. However, good managers will set profit goals right along with production and marketing goals and focus on all three throughout the production...

What about not-for-profits?

Urban Ag home | Table of contents Not-for-profit organizations need to understand their finances just as much as for-profit businesses do. Not-for-profit organizations do make profits (or positive net income). The difference is that not-for-profit organizations do not distribute profit to the...

What is profit?

Urban Ag home | Table of contents Profit is the calculation of income minus expenses. Urban farms produce crops, livestock, and other products for sale which generates income. To produce these products, inputs are required such as seed, compost, feed, labor, machinery, structures, etc. Subtracting...

Chapter 2: Economic assessment and risk management

Urban Ag home | Table of contents Dale M. Johnson Extension Specialist, Farm Management University of Maryland Extension Most of the work of a farm is in producing and marketing crops and livestock. But will this effort be economically viable? And what are the economic risks? These are questions...

Literature cited

Urban Ag home | Table of contents Afantchao, Y. (2010). Ethnic and specialty crops: A marketing guide. https://www.udc.edu/causes/land-grant/center-for-urban-agriculture-gardening-education/specialty-and-ethnic-crops/ Blaustein, R. (2017). Phytoremediation of Lead: What Works, What Doesn’t...

Summary

Urban Ag home | Table of contents Whether you grow vegetables, raise livestock, or culture mushrooms, taking the time to learn more about the topics in this chapter will help you better use the resources available to you to maximize how much you produce while minimizing the impacts of challenges...

Harvest, post-harvest storage, and food safety

Urban Ag home | Table of contents How you harvest your crops and how you store them until your customers purchase them has an important impact on the quality of your product and on food safety risk management. For most vegetables and fruits, especially leafy greens and herbs, harvesting first thing...

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