Calculating expenses helps grasp your farm's potential
If you read our post on estimating farm revenue, you may be tempted to stop there. But if you want anything close to a realistic look forward, you must compare that revenue to your farm expenses.We can divide your expenses into two categories: upfront and ongoing.
Both of these categories will factor into your income statement, balance sheet, and cash flows.
Upfront costs are paid once at the beginning of the building process. There will be two main upfront costs for your farm, including the building (or property) and the actual growing system.
If you are renting rather than buying the property, you will have a smaller upfront cost and increased ongoing costs, and your break-even point will be affected.
If you buy property your break-even point will be higher, you will need more money upfront, and your ongoing expenses will be lower.
There are trade offs for both of these options but it's important to think about how this affects you in the short and long term.
The actual growing equipment is the other main expense, and may include ZipGrow towers, racks/tower structure, irrigation, tanks, lighting, fish, CO2 injectors, climate control, ventilation, etc. If you are going to setup an aquaponic system you can estimate an addition 40% in upfront expenses.
Starting to grow hydroponically is a good option if you need to keep these upfront expenses lower. You can always transition the system to an aquaponic one if you see a need for this in your market.
There are also ways to lower your upfront costs- reusing tanks or building your own may be cheaper than buying them, for instance. Many of your fellow growers have found innovative ways to lower costs.
Ongoing expenses include costs that you pay on a regular basis, whether that be weekly, monthly, yearly, etc.
Let's take a look at three main expenses your operation will have.
1 - Cost of Goods Sold (COGS) includes the inputs that are directly involved in production- these will be things like packaging, pesticides, and fertilizer or fish food.
These can fluctuate slightly depending on your sales model and whether or not you have a pest or disease outbreak, but the fertilizer and fish food will be consistent.
Good fish food is almost twice as expensive as fertilizer so if you're trying to decide which growing method to use (hydroponic or aquaponic), keep this in mind.
2- Utilities can vary widely depending on your system setup, climate, and location.
If you are using supplemental lighting you can calculate exactly how much this will cost you per year.
To estimate your utilities you can look at the historical rates for a property or try to reach out to a someone in a similar building and talk to them about these costs.
You will want to consider water, electricity, and possible heating/cooling costs.
3- Labor is not a cost to overlook.
This is actually the expense that can make or break your operation. Make sure the system you choose is easy and efficient.
We estimate one full time employee can handle anywhere between 500 and 1,500 towers.
This amount depends on the experience of the grower and sales method being used, since Live Sales eliminates almost all harvesting.
Commercial Vertical Hydroponics in Action
Other expenses include your rent or mortgage payment, packaging, office supplies, transportation, etc.
If you aren't able to budget for these expenses and forecast your revenue you'll be going into your business blind!
Trying to calculate and project all of your expenses can be overwhelming, but it is possible!
We've got plenty of other videos and articles to help you out if you get stuck.
If you're really stuck, feel free to reach out to us.