How to Start a Small Business in Dairy Products

ronstik/iStock/GettyImages

If you love quality milk, cheese or yogurt, you might be considering starting a dairy business. While this sort of work is highly regulated and subject to inspections and other government-run checks, it can be a rewarding and lucrative industry. There are a number of considerations, however, when choosing to launch a dairy farm, creamery or milk-selling business.

The Versatility of Dairy Products

The dairy industry is surprisingly versatile and provides materials for products you might not consider. Dairy products can be used in everything from food to beauty products and beyond. Additionally, there are many industry options besides a traditional dairy farm, if you’re interested in launching a business in dairy.

Owning and operating a dairy farm may take a lot more time, energy, money and manpower than running a shop that sells dairy-based products. That said, it does offer significant versatility. On top of owning and operating your own dairy farm, you can also be a dairy distributor, carrier or manufacturer. For example, you could buy in milk products and manufacture your own yogurt or artisan cheese.

Dairy Farm Basics

If you’re considering running a dairy farm and never have before, you’ll definitely want to reach out to experts to get some insights so you can determine whether or not it will be a sustainable option for you. You can also attend open field days at farms in the area to get an idea of whether it is the right line of work for you. Additionally, you’ll also be able to talk with the owners and employees of those farms and see what has and has not worked for them to help influence your own plan.

On a dairy farm, you’ll need to create a cropping and feeding program to determine how you will take care of your cattle. This means that you’ll be giving them a mixed ration of food or you will allow them to graze (or both). If you’re feeding the cows with your own grown feed, that’ll take more time and money to maintain at the outset, so that’s another consideration. Additionally, you’ll also need to develop a plan to deal with manure and whether you will sell it.

Depending on what market needs are in your specific area, you’ll have to determine if a dairy farm would be feasible. You may be able to rent cattle, materials and supplies from other local farmers if you need help establishing your business. Additionally, being honest and upfront about what you’re capable of handling is important to keep your expectations realistic.

Dairy Products Business Plan

As is the case for all emerging businesses, you’ll need to create a cohesive business plan that supports your needs and goals. Analyze the strengths and weaknesses of your situation and consider any obstacles you might face. You should be realistic about your resources so you can adjust your expectations as needed or consider a dairy farm business loan. The business plan should start with a mission statement and a clear description of your goals. These should be things that are specific, attainable, rewarding and measurable. You’ll also need to provide your background, such as how you began farming, where you’re located, the amount of acreage you’re working with and any of your business practices that you think might be helpful to share (conservation, sustainability and more).

You’ll also need to share your farm strategy, marketing strategy and management strategy. This will speak not only to how you will run your farm but also how you will reach your target audience. Lastly, you’ll need to include a financial analysis section that covers available assets, expected supply costs and projected profits.

Ultimately, you’ll need to keep reviewing and revising your business plan until you have it completely nailed down. Speaking to others in the field, especially those in your local area, will help you finesse things. Banks or other lending institutions will want to review your business plan before offering you a loan, so it’s important to take the time to get it right.

Licenses and Permits

You’ll need to acquire the proper permits and licenses to operate your farm or shop. These requirements may vary based on your location. For milk-processing dairy businesses, such as those dealing with the production of cheese, yogurt or ice cream, you’ll need a specific permit. You may also need raw eggshell permits and labels, meat facilities, organic registration and a CSA registration.

On top of food permits and licenses, you’ll need to enforce health and safety codes and conduct or permit regular inspections of your food processing facilities, water systems and other operations, as well as have health and safety plans in place. You’ll also need to register with the USDA and/or the Food and Drug Administration if starting a farm or many other types of dairy shop, since you will be manufacturing, processing, storing and packing food, beverages and dietary substances.

Dairy Business Tax Considerations

You’ll need to request a tax ID number for your business from the IRS. Small farms and food industry businesses may get tax write-offs and deductions, but you should always work with a tax professional to ensure that you’re doing everything correctly. Many business owners operate their farms or shops on the same property as their own homes and could therefore qualify for a tax write-off. Take care to comply with all cottage industry laws regarding home-based food businesses, however.

Additionally, depending on whether you classify your dairy farm as a hobby or not, you might be eligible for other losses and income, especially if you raise livestock or grow fruits and vegetables. The IRS will consider your farm a non-deductible hobby if it doesn’t profit for three out of five years.

You can claim federal deductions for ordinary and business expenses that are necessary for running a farm or dairy shop, such as utility expenses, equipment, labor, supplies and items purchased for resale. Any loans you’ve taken on can also be deductible, further reducing your existing tax liability. In addition, there are property tax deductions you may qualify for, depending on your state’s agriculture department and county assessor rules.

Is a Dairy Business For You?

Ultimately, if you’re planning to launch a dairy farm or shop of your very own, you’ll need to ensure that you have enough capital to support it. The costs of equipment, cattle, supplies, land and outbuildings or a shop, maintenance and labor are quite high, and you’ll need to be adequately prepared. Land itself might even cost anywhere from $1,000 to $4,000 per acre, depending on where you are located.

On top of the cost, you’ll need to devote much of your time to your new dairy company. No matter how you approach it, you’ll need to have a clear idea for what you want to get out of your dairy business. No matter what you plan on doing, your passion will only be amplified if your business plan supports your goals and is carefully constructed.

References

Resources

About the Author

Danielle Smyth is a writer and content marketer from upstate New York. She has been writing on business-related topics for nearly 10 years. She owns her own content marketing agency, Wordsmyth Creative Content Marketing (www.wordsmythcontent.com) and she works with a number of small businesses to develop B2B content for their websites, social media accounts, and marketing materials. In addition to this content, she has written business-related articles for sites like Sweet Frivolity, Alliance Worldwide Investigative Group, Bloom Co and Spent.