[Market-farming] Business - Gross profits

Adriana gutierrez-lagatta at charter.net
Thu Feb 3 12:31:57 EST 2005


Even if people are willing to share net profits, one important question to 
ask is "do you pay yourself a salary"?  Or does your pay come out of what is 
left over?  This is a major factor in small operations where 100% of the 
labor is provided by the owners.  I would venture to guess that a lot of 
market farmers are n ot making much above minimum wage, in which case it 
time to re-assess products, markets, pricing, etc...

In your case Steven, does your 50% gross profit calculation include a labor 
figure for your time?  If so, how do you value your time?  When an owner 
wears many hats, should they "charge" the business for their time according 
to the value of the distinct tasks they are performing at the time?  For 
example, if I am harvesting, doing work that I could pay somebody $6-7/hr 
for, should I "pay" myself, on the books $7/hr?  When I am 
CEO/CFO/accounting clerk, should we value the time accordingly?

> Gross sales is indeed a good place to start a discussion about the 
> business of farming. Many farmers do not know what gross profit margin is 
> or how to figure it but they do know how to count the money at the end of 
> the day.

Let me dust off my financial books:

GROSS MARGIN =       Net Sales - Cost of Goods Sold
                                   ------------------------------------------------
                                                      Net Sales

In theory, your Cost of Goods Sold should include not just direct expenses 
like paid labor, seeds, fertilizer, pest management, packaging, supplies, 
insurance, transportation but also depreciation on equipment and unpaid 
labor.  It's tempting in a sole proprietorship mode to "fudge" these numbers 
and overlook expenses like the car insurance that you would be paying 
anyhow, the office space in your home, that cell phone that you would have 
anyway, the "home" computer and last but not least, the value of your time.

Unless we all use the same definitions, any discussion would be meaningless. 
Also, different products can have drastically different gross margins and no 
two market farmers have exactly the same product mix.  Even fewer probably 
have an accounting system detailed enough to supply cost accounting 
information at that level.

Adriana









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