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  • From: "Adriana" <gutierrez-lagatta AT charter.net>
  • To: <market-farming AT lists.ibiblio.org>
  • Subject: [Market-farming] Business - Gross profits
  • Date: Thu, 3 Feb 2005 11:31:57 -0600

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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