[Market-farming] More business
singingpigfarm at earthlink.net
Sat Feb 5 22:29:44 EST 2005
Hello all! Just came in from harvesting and I'm ready to dicuss some business. I would love to hear more from John hendrickson on this and
Barb, who uses Quickbooks and keeps a gross profit margin at 85%. You can bet that she's making money, no matter what her sales are.
It has been suggested here that a business owner's time be given a different value for different tasks performed. That's ridiculous. I pay my driver $11/hour.
60% of his hours are spent harvesting, washing, and cleaning the work area--should I reduce his wages when he isn't driving? Of course not. Besides
being illogical it would be illegal. If Bill Gates answers his phone, is his salary reduced to the same as his secretary's? I sell to
fine dining restaurants. It is quite common to have 2 owners in a restaurant: the chef, and a partner to handle the front of the house.
During a busy eveninjg the owner running the front of the house might bus tables, serve food, fill water glasses. Does his pay drop to that of a server
or bus person while he is doing that job? No. He's gets paid the same salary no matter what he is doing. In fact, he gets paid the same salary
if he is in Italy tasting wine. The owner's salary comes out of gross profit and is therefore not used to figure gross profit margin.
I you are a sole proprietor where does the income figure you put on your 1040 form come from--it comes from the bottom line of
Schedule C. The back of schedule C is where you account for your cost of sales, it is then brought to the front and subtracted from your gross sales.
Then other expenses are deducted and whatever is left is what you made as an owner--no matter what hat you happened to be wearing.
If you are a person who worries about what you make per hour then you should go get a job where you are paid an hourly wage.
I will agree that gross sales by themselves don't tell mcuh of the story, without knowing gross profit margin. Net profit also doesn't tell
much of the story. As a business owner, my ultimate goal is to maximize MY net income. The higher my business's net the more I pay
in taxes, therefore to maximize my net I want to take advantage of whatever the tax law allows. for example, funding a 401K. That reduces
the amount of tax I have to pay. Some farmer friends of mine just bought a new truck last december. We were talking aobut business
and one of the brothers said "We bought a new truck. We looked at our books and we could have paid more in taxes and driven around in
the old truck, or we could drive a new truck and pay less in taxes. No brainer." Last Novemver and December I bought a refrigerated delivery truck,
4X4 deisel pickup, JD Gator, and a 1/2 acre Haygrove tunnel. That reduced my net and lowered my tax bill. It also allowed me to position myself to
grow rapidly over the next few years. It also plowed thousands of dollars back into the local economy. and will eventually show up as wages
that someone is paying tax on. My point is, net profits don't tell you much if you don't have financial statements to go with it.
Gross profit margin, however is extremely useful. If you know a produce manager's gross profit margin, you can work backwards from his posted
retail price and know what he paid for an item. Very useful if you are wanting to sell your product to his store. I worked in telecommunications
for 15 years. One place I worked was a distributor of data communications equipment. The sales staff's commissions were tied to
their gross profit margins. Between 15-35% gross profit margin they got their normal commission. Over 35% the got a higher commission.
15% and under they got NO commission. The owner always told me "Pay attention to your margins. If you keep it at least 33% you will always
Somebody asked why I incorporated. I was a sole proprietor for many years. I had topped out on what I could do myself and needed to hire
employees. The part of the business I dislike the most is driving in traffic making deliveries. so my first employee is my
driver. I am exposing myself to too much risk having a driver working for me driving around in a truck I own. So one reason
to incorporate was to lower my exposure to risk. As my attorney told me, If we get sued and lose, we go bankrupt, reincorporate under a
different name and we're back in business the next day. The other reason I incorporated was because I knew I would be buying a farm
and I wanted the passive income stream from leasing the land and buildings back to the corporation. I also receive dividend income
which is passive. Passive meaning unearned income that is not subject to FICA. By incorporating I receive 2 passive income streams
and only one earned income stream.
I paid my attorney and CPA to do the incorporation. The lease agreement between myself and the corporation was drawn up by my attorney.
There are some things I prefer to have a professional do for me.
Someone asked about labor. Other than my driver, I use work crews from an agricultural labor contractor. I ususally bring in a crew
of 10 plus a foreman. The contractor pays workers comp,. unemployment, handles payroll, verifies immigraton status, supplies portapotties,
drinking water, hand washing stations. I only have to deal with the foreman, and I only have to write one check to the contractor. I
have no payroll expense etc. I only bring them in on an as-needed basis.
Please somebody else jump in .I know there is a wealth of knowledge out there.
singingpigfarm at earthlink.net
EarthLink Revolves Around You.
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