Mushroom farm accounting – accounting for a mushroom farm, or any other agricultural business – is a highly technical and demanding process that requires experienced professionals to ensure accuracy and compliance.
Unfortunately, the main reason why small mushroom farms fail at scaling is they do not treat their operation as a business. The idea is “so long as I’m making money, I’m doing alright.”
But there’s more to it than that. While this works in most cases, to grow, you’ll need structures behind your business. And this involves tracking your expenses and income sources.
Even without growing psilocybin mushrooms illegally, legal medicinal and food-purpose mushroom farming can be a risky business. Farmers must maintain healthy crops while satisfying customers’ demands at the same time.
In this post, we cover mushroom farm accounting, including accounting for mushroom production costs, the costs of growing and processing, and other insights that will ensure your profitability.
Mushroom Accounting: The Basics
First, you’ll need to make sure you’re tracking your expenses properly. This involves creating three separate accounts for the following:
- Your personal account
- Your business account
- Your savings account
For each of these accounts, you’ll have a few areas to place money. This is where you’ll list your income sources and your expense sources.
Your main income source will probably be your mushroom farm. But you’ll also have a list of expenses to include here.
All of your expenses, beginning with your rent or mortgage, vehicle costs, the cost for electricity and water, and more. As you’re defining what you should have separately listed or what you may place into miscellaneous, consider the size of this position overall.
For the miscellaneous section, you don’t want to put too much in this section. This is how you’ll maintain control over where you’re allocating your capital.
Mushroom Farming Business Plan and Profit & Loss Statement
Your profit and loss statement should be simple. This will allow you to track your expenses.
You may just be getting your farm started. If this is the case, you likely only have a single source of income (your farm). You’ll begin here and expand from there.
For your expenses, you’ll include your rent or loan, along with the interest rates involved. This will also include your salary and capital allocated towards marketing.
Eventually, you’ll scale your operation professionally. By then, you’ll likely need a CPA or other professionals to consult your business. These expenses should go into a bracket titled “Consulting.”
The goal here is to have a sum of your income sources and a sum of your total expenses. Once you subtract the payments from your income, you’ll have a sum for your profit or loss.
Creating a monthly business profit/loss statement will ensure you’ll notice any changes in your income and expenses. This will also allow you to spot any patterns for fluctuations in your income throughout the year.
Accounting for Mushroom Production Costs
Mushroom farms are either classified as Large-Scale Producer (LSP) or Small-Scale Producer (SSP). Large-Scale producers grow for retail sales in supermarkets and grocery stores, while Small-Scale Producers sell to local markets and restaurants.
Large-Scale producers are expected to maintain higher standards than their small producer counterparts. Mushroom production is all about the safety of the consumer. As such, LSPs must maintain more rigorous food safety standards, including proper testing and sanitary certification.
Accounting for all of the costs associated with production can be complicated, but here are some costs to keep in mind:
- planting material;
- mineral & organic fertilizers;
- plant protection products;
- work and services;
- deductions for social services;
- depreciation & repair of fixed assets;
- overhead & general expenses;
The costs also should include the cost of the raw materials (mushrooms) and processing.
Mycelium is one byproduct of mushroom production. This is valued at the typical value or the price of a possible sale. But it can also be used as an organic fertilizer.
Accounting for the Costs of Growing and Processing Mushrooms
For determining the costs of growing mushrooms, you’ll need to collect them on the sub-account “Crop production.” Once the farm has finished products on hand, it can write them off.
Accounting for grown mushrooms is based on what the farm does with these products. If the farm sells the mushrooms it produces, the CPA deducts the cost of production. However, if the farm processes the mushrooms, then they count as raw materials. Once this is done, it’s time to write off the mushrooms as expenses on the sub-account “Industrial production.”
Think more about recycling and consider the direct costs. The direct costs should be included in the cost of production. However, indirect costs (depreciation, maintenance of premises, and others) must be allocated.
Accounting for Mushrooms While Purchasing From the Population
Mushroom businesses can purchase mushrooms from the population. The company signs a liability agreement with the seller, and the accountant provides advance payments to these growers.
The accountant must take the mushroom seller’s information. This information then must go into the procurement act. This act is then made into two copies, one of which is for the farm and the other is for the mushroom seller.
These purchased mushrooms get accounted for as inventories. The company can include the shipping costs as part of the actual cost of production.
Confirming Costs of Growing Mushrooms
Confirming the cost of growing mushrooms involves using the following:
- Sheet recording labor and work completed;
- Act showing the utilization of organic, bacterial, and mineral fertilizers;
- Act showcasing spore and planting stock consumption.
Collected mushrooms should be tracked, as are the weight and quality of the mushrooms. Each day should be concluded with the accounting department or firm receiving documentation showing all of this information
Mushroom Farm Accounting FAQ
Is mushroom farming taxable?
Yes, it is considered taxable income. The farmer will need to pay taxes on the mushrooms that are grown and sold.
Can I write off the cost of my land?
No, you can’t write off the cost of your land. However, you may be able to write off other costs associated with the production of mushrooms, such as water and electricity. These expenses can be applied to the mushroom farm’s business income.
Do mushroom farmers make good money?
Yes, mushroom farmers can make a lot of money. The income potential for this type of farming is high, especially as the demand for mushrooms continues to grow.
Can I get a loan to start a mushroom farm?
Yes, you can get a loan to start a mushroom farm. However, the terms of the loan may be difficult to obtain. You’ll need to have a good business plan and be able to prove that you can make a profit from mushroom farming.
How much investment do you need for mushroom farming?
The amount of investment you’ll need for mushroom farming will vary, depending on the size of your farm and the type of mushrooms you grow.
You may need as little as $10,000 to get started, but it’s best to speak with an accountant or financial advisor to get a more accurate estimate as this can vary from region to region.
What are some of the costs associated with mushroom farming?
Minimally speaking, some of the costs associated with mushroom farming include:
- Water & Electricity;
- Materials, such as compost and fertilizer;
How long does it take for a mushroom farm to become profitable?
This can vary, but it typically takes a few years for a mushroom farm to become profitable. You’ll need to be patient and continue to reinvest the profits back into the business in order to see significant growth.
How do mushroom farmers make money?
Mushroom farmers make money by selling mushrooms. The amount of money they make will depend on the size of their farm, the type of mushrooms they grow, and the market conditions.
Concluding on Mushroom Farm Accounting
Mushroom farm accounting is essential for these operations. While the basics have been outlined, it’s important to speak with an accountant who can help you navigate the specific tax and financial requirements of this type of business.
With the proper accounting in place, your mushroom farm can be successful and profitable. And for those interested in getting involved in the legal psilocybin marketplace, growing legal medicinal mushrooms or mushrooms for consumption is a great way to prepare for federal legalization.
Looking to scale your mushroom farm? Northstar is ready to help!
Contact us now to speak with one of our experts about how we can grow your mushroom operation with data insights leading the way!