Top 5 Tips For Growing Your Farm Business Debt-Free

There is a flower farm business myth out there that in order to have a thriving, successful, and fast-growing business, you must incur some debt.  Perhaps this is because it might be the “easiest” way to get from point A to point B – borrow a bunch of money, make the thing happen, and worry about paying it back later.  (Or maybe because wealthy and powerful bankers have it in their best interest to push this idea so they can make even more money off us?)

Is debt really the answer, though?

For some the answer is yes. But for me, definitely not.

I am by no means a money expert- but I have grown my flower farm quite a lot in a relatively short amount of time without incurring any debt whatsoever.  I did this entirely on purpose because I knew that debt was a big risk, and also a big financial stressor, that I did NOT want to deal with or think about at night while trying to fall asleep.

Taking on some debt may be the answer for some people, and certainly would be a route I would consider now that I know what I am doing when it comes to getting a successful business of the ground.  But, for most, it is not a route I would encourage. I am fairly financially risk-averse, but you may feel totally fine with incurring some debt, and there is absolutely nothing wrong with that.

It sounds easy to take out a loan to buy a tractor, build a barn/studio, amend your soils, and invest in a long-lived perennial planting… just do it all at once, get it over with, and then focus on making money. However, there can be a lot of issues with that philosophy.

Debt impedes success by increasing expenses (you have to service the debt), and therefore diverts profits away from YOU and your farm.  Being debt-free makes you and your business much more resilient – in the case of an emergency (or say… a pandemic??), you won’t have a. huge monthly payment looming over your head with no cash in the bank to pay it.   Risk is avoided and economic downturns are managed much more easily when you are debt-free.  Without debt, you have complete freedom over how you spend your money.

I grew my farm from nothing to something significant without going into debt and by making smart, financial choices.  I have kept more money in my pocket this way and have not had to stress over owing anything.  I also have been able to use my money any way that I see fit – I don’t have to get approval from someone else (what’s the point of being a business owner if you have to ask for permission first?).   That being said, starting a business was definitely a financial strain - but it was totally worth it and I would not have done it differently.

Here are my top 5 tips for growing your business debt free:

1.       Start slowly: Not only does this benefit you financially, it is also wise to start small, and slowly grow your business as you learn and grow more professionally.  My ideal business from year 1 to year 8 has changed dramatically, based on everything I have learned so far.  Making mistakes when your business is small (which is inevitable), means you can still bounce back.  But if your business grows too quickly and you do something stupid with your money – it can be a final nail in the coffin. 

2.       Build your business as a side hustle: Work a full-time (or part time) job while you work nights and weekends for yourself.  Yep- this requires a ton of effort, sacrifice, and dedication, BUT it will battle train you for the ranks of entrepreneurship.  I was able to build up a customer base and clientele this way before I quit my off-farm job to farm full time.  When the time came for me to transition to full time on the farm, I had a throng of customers waiting for me to expand and support me.  I strategically saved money to pay my bills during the transition, and most of the risk-taking was mitigated by already having a solid clientele set up in advance.

3.       Save as much money as you possibly can.  Save at least 3-6 months (if not more) of expenses in an “emergency fund.”  This will mitigate the risk you are taking by choosing to make the move from being an “employee” to a “business owner.”  I saved the maximum vacation time I could on my off-farm job, and took it in the form of cash when I left.  I used this money for personal expenses so I didn’t have to worry about the farm paying me for a while when I went full time.  I reinvested all profits back into the farm and was able to build infrastructure that way, instead of using profits to pay myself.

4.       Reinvest profits and prioritize investments. Take all profits and reinvest in the farm for as long as you can manage.  Building a farm is expensive and requires plenty of investment in infrastructure (processing areas, tool sheds, hoop houses, irrigation systems, walk-in coolers, storage areas, etc.).  Investing in these things upfront and as soon as you can will relieve headaches in the future by allowing you to streamline and be efficient faster.  Reinvest in things that are absolutely necessary and that undoubtedly will make you money.  For example, a tractor is nice, but do you really NEED one if you are only growing on 1/4 acre?   Is that purchase going to DIRECTLY result in more profits?  -Probably not.  Use elbow grease to get away with whatever you can in order to get money in the bank first. 

5.       Focus on gross margin (revenue doesn’t matter). You could make $100,000 a year, but if your profit margin is only 2%... then you’re only walking away with $2,000 in profit.  Instead of focusing on gross revenue, pick customers and products that provide you with a healthy profit margin so you can get money in the bank and ignore the rest. Profits come from managed margins and no debt to service.  When you manage profit margins well and keep expenses low (including debt), bottom-line profits will almost undoubtedly exist. 

Sometimes debt is unavoidable, necessary, and even desirable.  Used wisely, debt can give you a leg up.  Capital expenses that optimize systems, improve products, or reduce your overhead may be worth it- especially if it can allow you to make more money, faster.  Personally, I have not found a need for it yet.  If I want to make a big purchase to improve my farm, I simply budget for it and save until I have enough money for it.   This is different than incurring debt for the sake of “cheap money,” in order to grow your business at lightning speed (may not be the best idea if you have no experience as a business owner yet).  

Financial discipline is a skill that you can hone by practicing restraint and making well-thought out decisions.

I’d love to know what you think – will you use any of these 5 tips?  Do you think they would serve you well, or do you disagree?  Let me know by commenting below!