Step 4 of Hippo Camp is all about taking care of you, financially. That means we're going to figure out how much money you need to live on, then we're going to figure out how much money you're going to need to make this year to run your business plus achieve those big, beautiful, achievable goals you set in Step 3.
In preparing for this post I googled "how to make a budget for a small business". In every step by step guide I read, the stated goal was to examine expenses to see if the business is making money. The guides start by listing revenue (where the money is coming from), then subtracting fixed costs (rent, insurance, etc), then variable costs (raw materials, office supplies), and some also included improvement (infrastructure or equipment) or contingency (save for emergencies) costs. The resulting number, or the net, then shows if the business is going to make money or not. If the business isn't going to make money, the common recommendation is to cut variable costs until the net is positive. I'm not super into it. In fact, I'm really not into it.
Instead, I like to plan out how much money I need to survive, then how much money I'd need to thrive, and that total number becomes the most important line item in my farm's budget. Read that again. Jake's and my personal income is the most important line item in our farm's budget. We put a lot of time and thought into our personal budget, then plug it into the farm's and build expenses up from there. We then add in infrastructure and equipment investments that we've already determined will help us move towards achieving our goals. Next we set our crew's pay rates, because I think that supporting our people is just as important to invest in as a new seeder or greenhouse. Next we pop in all the operating costs, fixed and variable. Finally we look at our income.
If our income and expenses line up perfectly then the stars have aligned and we can move on. If, instead, the income is more than the expenses then I get to choose something to add from my wish list. If (and this is typically the case because I go big on what I want out of the farm) the expenses are more than the income then I have to make some decisions and either increase income, decrease expenses, or get an off-farm job.
It may sound like my method is fairly similar to the traditional method, but let's take a second and talk about why I think that they are fundamentally different.
For many people, Money is the number one stress on their business, their relationships, and on their self-worth. In a traditional budget that focuses on income first, and hopes the expenses will work out ok, we are starting our year off with uncertainty in our personal income. We're giving the ownership of our personal financial well-being over to our business, and we're hoping for the best. In fact, one of the guides I read listed "owner's pay" as one of the variable costs, implying that if the business isn't making money, we should consider cutting our own take home pay for the business's sake. This might make sense if a business is rolling in it, but if you're reading this I'm fairly certain that you aren't pulling up to your farm in a benz.
So here's what Step 4 is going to look like.
In this step of Hippo Camp we try to imagine what an ideal income would look and feel like. We're curious about what it might cost to run the farm of our dreams. Or if not our dreams, at least the best farm we can have in the next 12 months. We are going to list out all of our personal monthly expenses (food, car payments, health insurance etc) including the ones we don't like to talk about (all the yoga apps I forgot that I signed up for and am still paying an annual fee). We will add a list of annual expenses that have traditionally sneaked up on us (firewood, snow tires, car registration), and we'll list out things we'd like to save up for (vacation, emergency funds for the car or our dog, and retirement). We're starting here because if we are absolutely certain that the farm is paying for our basic needs, we don't have to worry about it. And that, my friends, is the point of Hippo Camp. We're setting the expectation that we need to, and we will, take care of ourselves. It's possible that your business can't do that yet, and that's ok. What's important is putting yourself first, and getting real with what it costs to keep You going. What's important is knowing that number, owning that number, and making sure that's what makes it to the bank. If you have to do some babysitting/work at the local co-op/send a spouse to a real job to do it, at least you'll know that it was your decision to care for yourself, and it wasn't a failure in your farm's performance.
If your ideal farm budget outweighs what you imagine to be your current earning potential, we're going to address that too. We're not here to sigh and take something off the wish list, reduce employee wages, or drop our health insurance in 2020. We're here to see if we CAN create farms that support their people. To give you hope, in 2018 we made an outlandish, overly hopeful budget that had us needing to gross $147,000 on 1.5 acres, which was $30,000 more than we had ever made, and 30% more than any income jump we'd ever achieved. We poured our hearts into making that money, because we knew through this process that the number had meaning that was bigger than costs vs expenses. We knew that if we made that money it would mean that we had also saved money over the year to visit my family in California, we had given our employee's significant raises, and we had invested in important tools and equipment. Having that foundation made it easier to make decisions in the heat of the season. That foundation led to projects that increased our sales in every single enterprise (except chickens, and that's because they got eaten by a fox). This year we're going to gross over $170,000. That's $50,000 more than last year, and $20,000 more than what I thought was possible on small acreage. Of course, our expenses increased as well, and it was a great growing year, so take it with a grain of salt, but that's significant folks. That growth wasn't because of a special tool, or plant spacing, or a new variety of spinach. It was because of budgeting. It was because of the step that you're about to take. I'm so excited to see what you all come up with.
Ready to dive in? Let's do it.
Taylor Mendell. I grow things for people to eat.