How To Start A Custom Farming Business

October 2, 2017 04:18 PM
 
Spray Rig

Running a custom business can be a great way to generate extra income for your farm operation. Maybe you’ve noticed a need for custom work in your community, whether it’s building products such as water-tank tires or providing services such as spraying crops.

If you have the desire to fill those needs, follow these startup tips from producers who have found success with side businesses. 

1. Perform due diligence.

Maybe you can afford to start a business, but can you also afford to help it grow? Consider whether there is a future in the product line or service you want to provide. Who will your customers be, and how can you best serve them? These are questions you should ask yourself ahead of time, says Dave Nelson, a 2013 Top Producer of the Year honoree. He grows corn and soybeans on his family farm in Iowa while also managing his business, Brokaw Supply Company, an equipment dealer specializing in sprayer and fertilizer application equipment.

Always write out a business plan for any new venture. Research the market and understand your capabilities and limitations.

2. Surround yourself with the right people.

Even if you’re well-rounded, you’re still only as good as the people around you, Nelson says. Build an advisory team that includes your attorney, accountant and banker, as well as one or two people who know the business you’re interested in. These experts can help you navigate insurance selection, business structure and bookkeeping.

Network with people outside your geography to trade business ideas and learn from successful business owners. You might connect with someone who shares your passion but isn’t a direct competitor.

3. Find your economy of scale.

It’s natural to start out small, but keep in mind that higher production often lowers input costs. For Thomas Vetter, a North Dakota producer and seed dealer who makes rubber water-tank tires on the side, the cost of parts and labor has decreased as his custom business grows. 

“The bigger you get, the cheaper you can buy materials,” Vetter says.

Although there are cost benefits for larger businesses, don’t take on too much when you’re just starting out. Seek a balance between production levels and input costs.

4. Differentiate yourself from the competition.

When starting a business, show how it provides value. What sets your product or service apart from the rest? You might not have to compete on prices if you work to build a higher-quality product or provide better service than your competition, Vetter says.

Once you’ve built a relationship with your customers and proven your worth, their word-of-mouth recommendations can provide a lot of free marketing. But the factor that sets you apart won’t last forever. Eventually, your competition will catch on and you’ll have to keep improving to stay ahead.

“Continually implement and establish new, innovative things that differentiate you from the competition,” Nelson says. “It keeps customers looking to you for what’s next, and then you become a trusted source.”

5. Develop an exit strategy.

No one starts a business with the intention of ending it, but it’s important to prepare for any eventuality, Nelson says.

The buy-sell agreement piece of your business plan (see page 18) will help you prepare for the worst-case scenario. Work with your attorney to decide what you should do in case you experience financial problems, partnership changes or other circumstances that could affect how your business operates.

It’s easy to focus on the startup and growth part of your business plan, Nelson points out, but it’s almost more important to decide how you will handle adversity in your business. Be prepared for everything up front and there will be fewer surprises later on.

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