According to the Federal Reserve, U.S. commercial banks held $22.8 trillion of assets in August 2023. At the same time, private funds (private equity funds, hedge funds, etc) managed by SEC registered investment advisers held about $21 trillion of assets. And the SEC is imposing new regulations on investment advisers managing private funds.
Who do the new rules apply to?
Some of the rules apply to all investment advisers, whether or not those advisers register with or report to the SEC. However, the most onerous rules only apply to SEC registered investment advisers (RIAs).
Notably, the new rules do NOT apply to:
Managers of funds that only invest in real estate (directly — no funds of funds), or
Managers of funds that only invest in commodities which aren’t also securities.
That’s because neither of those types of fund managers are “investment advisers” under federal law which means they are outside the jurisdiction of the SEC.
What are the new rules?
New rules that apply to all private fund advisers, whether or not they are registered with the SEC:
Preferential Treatment Rule (Rule 211(h)(2)-3).
Prohibited Preferential Treatment. In general, fund advisers may not provide preferential redemption terms or information to one investor if such terms or information are reasonably expected to have a material, negative effect on other investors in the fund.
Preferential Rights Permitted with Disclosure. Preferential rights not reasonably expected to have a material, negative impact on other investors may be granted to a fund investor so long as notice of those preferential terms is provided to the other investors.
Restricted Activities Rule (Rule 211(h)(2)-1)
Certain Non-Pro Rata Fee and Expense Allocations. In general, an adviser may not directly or indirectly charge or allocate fees and expenses related to a portfolio investment (or potential investment) on a non-pro rata basis when multiple funds advised by the adviser or its related persons have invested (or propose to invest) in the same portfolio investment, UNLESS (i) the non-pro rata charge or allocation is fair and equitable, and (ii) the fund adviser distributes to each fund investor a notice of the non-pro rata fee or expense allocation.
Reduction of Adviser Clawbacks for Taxes. Advisers may not reduce the amount of any adviser performance fee clawback by actual, potential, or hypothetical taxes applicable to the adviser unless written notice is provided.
Charging Regulatory, Compliance, or Examination Fees without Notice. Advisers may not charge or allocate any regulatory or compliance fees or expenses (or fees or expenses associated with a regulatory examination) unless the adviser distributes a written notice of any such fees or expenses in writing at least quarterly.
Charging Government Investigation Fees without Consent. An adviser may not charge fees or expenses associated with a governmental or regulatory investigation of the adviser to a fund that it manages, unless the adviser obtains written consent from a majority of the fund’s investors that are not related persons of the adviser.
Borrowing or Receiving an Extension of Credit from a Client without Consent. Advisers may not directly or indirectly borrow money or assets, or receive credit, from a private fund client, UNLESS the adviser distributes a written notice of details of the proposed extension of credit and obtains consent from a majority of the fund’s investors who aren’t related persons of the adviser.
New rules that only apply to RIAs managing private funds:
Quarterly Statement Rule (Rule 211(h)(1)-2). RIAs must provide the investors of each private fund they manage with quarterly statements that include information about fund fees, expenses, and performance.
Mandatory Private Fund Adviser Audits Rule (Rule 206(4)-10). Private funds managed by RIAs must undergo an annual financial statement audit, and the audited financial statements must be delivered to all investors in the private fund.
Adviser-Led Secondaries Rule (Rule 211(h)(2)-2). RIAs conducting an adviser-led secondary transaction with respect to any private fund it advises must distribute to investors in the private fund, below the election form for the transaction is due, (1) a fairness opinion or a valuation opinion from an independent opinion provider, and (2) a summary of any material business relationships the adviser has or has had within the last 2 years with the independent opinion provider.
Appropriate records must be kept for each of the new rules (both the ones that apply to all investment advisers as well as the ones that only apply to RIAs).
How much does an audit cost?
According to Accounting Today, the average cost for a public company audit in 2021 was $2.67 million. However, according to a Harvard law school study, the average amount that SEC registrants paid for an audit was only $2.18 million in 2021.
The Harvard study also found that the average cost of an audit was about $600-750 per million dollars of revenue for U.S. companies (less for foreign companies). That means a public company should generally expect to pay about 0.06-0.075% of revenue on audit fees. Accelerated filers, however, pay substantially more (about $1,500-$2,000 per million of revenue).
Suppose we have a $100 million private equity fund whose portfolio companies generate $100 million of revenue and $20 million of profit. Assuming no leverage is used, the IRR is 20%. If an audit costs $2 million, then the IRR drops to 18%.
Do the new rules apply to VC firms?
VCs which rely upon the VC exemption from the SEC registration requirement do not need to comply with the quarterly statement rule, the annual audit rule, or the adviser-led secondaries rule, but they must still comply with the preferential treatment rule and the restricted activities rule. However, VCs which register as investment advisers with the SEC must comply with all the new rules.
Do the new rules apply to SEC exempt reporting advisers (ERAs)?
Exempt reporting advisers do not need to comply with the quarterly statement rule, the annual audit rule, or the adviser-led secondaries rule. However, ERAs must still comply with the preferential treatment rule and the restricted activities rule.
Do the new SEC rules apply to unregistered investment advisers?
Investment advisers who are not required to register with the SEC do not need to comply with the quarterly statement rule, the annual audit rule, or the adviser-led secondaries rule. However, unregistered advisers must still comply with the preferential treatment rule and the restricted activities rule.
The total wealth owned by all U.S. households and nonprofits in the U.S. is valued at $149 trillion according to the Federal Reserve as of March 2023.
We don’t include the wealth owned by corporations because that would be double counting, since every corporation is owned (directly or indirectly) by some combination of individuals and nonprofits.
The $149 trillion of total wealth consists of approximately $168 trillion of assets along with $19.6 trillion of liabilities (of which $19.2 trillion belongs to households while $0.4 trillion belongs to nonprofits).
The biggest contributions to household net worth were (1) directly and indirectly held corporate equities ($42 trillion) and (2) household real estate ($41 trillion).
How big is the U.S. housing market?
The total value of all U.S. housing in 2023 is about $48 trillion.
How big is the U.S. public stock market?
The total value of all equities traded on the New York Stock Exchange, Nasdaq, and OTCQX was approximately $46 trillion as of June 30, 2023.
How big is the U.S. public bond market?
The total value of all publicly issued bonds (both corporate and government) is about $51 trillion as of 2023.
What is the total equity value of private companies in the U.S.?
According to economics professor Jacob Robbins, the total value of all U.S. private companies was about $13.6 trillion in 2017.
From August 2017 to August 2023, the S&P500 climbed about 83.7%. If we assume that private companies perform about the same as public companies on average, then that would imply the total value of all privately held companies in the U.S. is about $25.0 trillion as of August 2023.
How much money is managed by SEC-registered investment advisers (RIAs)?
In 2022, RIAs managed $114 trillion of assets, down from $128 trillion of assets in 2021.
The USDA tracks the average value of U.S. farmland per acre in each state. This value includes both the property of the land itself as well as any buildings and other agricultural structures on the land. Below are the 10 states with the highest average farmland values as of August 2022.
1. Rhode Island ($17,500 / acre)
Rhode Island takes 49th place for total agricultural exports from the state, but it takes first place for most expensive farm real estate, with an average price of $17,500 per acre.
2. New Jersey ($15,400 / acre)
New Jersey is the 3rd largest producer of cranberries, spinach, bell peppers, and peaches among all U.S. states, and New Jersey farms cost an average of $15,400 per acre.
3. Massachusetts ($15,200 / acre)
Massachusetts has 492,000 acres of farmland that is valued at $15,200 per acre on average. That means the total value of Massachusetts farmland is about $7.5 billion.
4. Connecticut ($13,700 / acre)
Connecticut farms generate about $600 million of revenue per year, and the average value of Connecticut farmland $13,700 per acre.
5. California ($12,000 / acre)
California is the largest agricultural producer of any state, and California farmland costs $12,000 per acre on average.
6. Delaware ($9,800 / acre)
Delaware farms produced about 2.5 times more agricultural revenue than Connecticut farms, despite Delaware being more than twice as small as Connecticut by total land area. That means Delaware is more than 4 times as agriculturally productive on a “per square mile of state” basis as Connecticut is.
7. Maryland ($9,700 / acre)
Despite the large number of government contractors in Maryland, the largest commercial industry in the state is actually agriculture. The states farms generated more than $17 billion of revenue each year, and the average price of farm real estate is $9,700 per acre.
8. Iowa ($9,400 / acre)
Iowa’s farms mainly produce corn, soybeans, and hogs, although cattle is also a big industry, and vineyards are growing in importance.
Iowa farms operate approximately 30.5 million acres of farmland which carries an average value of $9,400 per acre. That implies the total value of Iowa farm real estate is about $287 billion. From that capital base, Iowa farms generated about $35 billion of revenue in 2022 which is just over a 12% average cap rate.
9. Illinois ($8,900 / acre)
Illinois has 27 million acres of actively operated farmland which carries an average value of $8,900 per acre. Illinois’ biggest crop is corn.
10. Indiana ($8,000 / acre)
Indiana has about 14.8 million acres of actively operated farmland which carries an average value of $8,000 per acre. Like Iowa and Illinois, corn is the state’s biggest crop, followed by soybeans.
How big is the U.S. residential real estate market?
The estimated total value of all U.S. housing as of July 2023 is $48 trillion.
Here’s a brief explanation of how I calculated that:
I started with Redfin’s estimate that the total value of U.S. homes was $45.3 trillion as of December 2022.
According to FRED, the median sale price of new houses dropped from $479,500 in December 2022 to $436,700 in July 2023 (an 8.9% decline).
Also according to FRED, the median sale price of existing homes increased from $366,500 in December 2022 to $406,700 in July 2023 (an 11.0% increase).
Median listing price per square foot also increased from $213 in December 2022 to $224 in July 2023 (a 5.2% increase).
Since there are about 144 million homes in the U.S., and only about 800,000 of those were new construction homes sold during the last year, it’s probably more accurate to say that the change in median sale price of homes overall (both existing & new construction) has gone up by somewhere between 5.2% and 11.0%.
Using 5.2% as our conservative estimate for the median change in home value from December 2022 to July 2023, we can estimate the total value of U.S. residential real estate to be:
($45.3 Trillion) x 1.052 = $47.6 Trillion
In other words, the estimated total value of the U.S. housing market as of July 2023 is $47.6 trillion. Since that is our conservative estimate, the true value is probably more like $48 trillion.
According to this dataset, new house prices dropped from $479.5k in December 2022 to $436.7k in July 2023 (an 8.9% decline).
According to this dataset, new house prices increased from January to March 2023, dropped in April, went up in May, dropped in June, then went up in July.
Under Florida law, if your microgreens business qualifies as a “food establishment”, then you must obtain a food establishment permit from the Florida Department of Agriculture and Consumer Services (FDACS) before you begin operations.
In general, if you plan to chop, juice, or “process” your microgreens, then you will need to obtain a food establishment permit from FDACS. However, if you harvest and sell your microgreens directly to customers in their natural form, then you don’t need a food establishment permit.
I know this because (1) I read the actual Florida legal statutes and (2) I emailed the Florida Department of Agriculture and Consumer Services Division of Food Safety to make sure I was interpreting the law correctly. Here is my exact email correspondence:
Hi,
I’m planning to start a small microgreens business (growing, harvesting, packaging, and selling, without any other type of processing), and I’m wondering what rules and regulations would apply. I also have a few specific questions:
1) Are farms considered “food establishments”? Florida statute 500.12 requires that food establishments be permitted. However, the definition of “food establishment” in Florida statute 500.03 excludes “establishments that pack fruits and vegetables in their raw or natural states, including those fruits or vegetables that are washed, colored, or otherwise treated in their unpeeled, natural form before they are marketed”. Does that mean that a small farm that grows and packages lettuce for sale at a farmers market would not need a food establishment permit?
2) Are there any other inspection, permitting, or licensure requirements for farms? If so, what are they?
Here’s what the FDACS food safety regulatory consultant replied back:
Good morning,
Thank you for contacting The Florida Department of Agriculture and Consumer Services, Division of Food Safety,
Regarding the below inquiry if you will be selling whole fruits and vegetables with no further processing beyond the initial harvesting cut you are not required to hold a permit unless you plan to wholesale the product to another business in which case a wholesale / manufactured food establishment permit would be required.
The below link will provide information on permitting requirements if you plan to wholesale your microgreens to other businesses.
In other words, if all you do is grow, harvest, wash, package, and then sell microgreens directly to consumers (e.g. via delivery or at farmers’ markets), then you don’t need any permits from FDACS.
However, if you plan to wholesale your microgreens to restaurants or other businesses, then you’ll need to obtain an FDACS food establishment permit. Obtaining a permit requires an inspection and the use of a commercial kitchen for any food preparation (such as chopping or juicing).
NOTE: Microgreens farms are NOT cottage food operations under Florida law. The exemption of microgreen farms from FDACS food establishment permitting is a DIFFERENT exemption than the one for cottage food businesses.
If you’re unsure about whether or not your microgreens operation will need a permit, you can pay for FDACS’ “Voluntary Plan Review” service. It’s a review service billed hourly, typically starting at $55 and increasing depending on size and complexity of the review.
Do I need an FDA permit?
You do not need an FDA permit to operate a microgreens farm. However, you must follow the FDA guidelines described in 21 CFR part 112 unless your farm operates under a section 112.5 qualified exemption (explained below).
If your microgreens farm generates less than $500,000 in annual revenue and sells predominantly direct-to-consumer (rather than to restaurants or through supermarkets), then you are eligible for a qualified exemption from most FDA part 112 requirements. However, to actually claim this exemption, you need to keep all sales records to prove that you actually are under the $500k annual limit. Additionally, you still need to comply with the following FDA regulations:
In addition, you are subject to the following modified requirements:
(1) When a food packaging label is required on food that would otherwise be covered produce under the Federal Food, Drug, and Cosmetic Act or its implementing regulations, you must include prominently and conspicuously on the food packaging label the name and the complete business address of the farm where the produce was grown.
(2) When a food packaging label is not required on food that would otherwise be covered produce under the Federal Food, Drug, and Cosmetic Act, you must prominently and conspicuously display, at the point of purchase, the name and complete business address of the farm where the produce was grown, on a label, poster, sign, placard, or documents delivered contemporaneously with the produce in the normal course of business, or, in the case of Internet sales, in an electronic notice.
(3) The complete business address that you must include in accordance with the last two requirements must include the street address or post office box, city, state, and zip code for domestic farms, and comparable full address information for foreign farms.
Additionally, per 112.7, you must maintain certain records:
(a) You must establish and keep records required under this provision in accordance with the requirements of subpart O of this part, except that the requirement in § 112.161(a)(4) for a signature or initial of the person performing the activity is not required for sales receipts kept in the normal course of business. Such receipts must be dated as required under § 112.161(a)(4).
(b) You must establish and keep adequate records necessary to demonstrate that your farm satisfies the criteria for a qualified exemption that are described in § 112.5, including a written record reflecting that you have performed an annual review and verification of your farm’s continued eligibility for the qualified exemption.
If your microgreens farm is NOT exempt, you (or at least one other supervisor or responsible party for your farm) must successfully complete food safety training at least equivalent to the standardized curriculum recognized as adequate by the FDA, and your farm must comply with all part 112 regulations.
NOTE: Technically, the $500k annual sales requirement is in 2011 dollars, so after inflation adjusting, you could actually sell more than $500k and still be eligible for a section 112.5 qualified exemption.
If your eyes have already rolled back into your head, and you just want to start your microgreens business without all the headache of compliance, then shoot me an email. I offer an all-in-one service to help aspiring microgreens farmers launch their businesses, and I handle all the boring compliance and bookkeeping setup.
Do I need any permits from my county or city?
Most businesses in Florida must obtain a local business license by paying a (usually flat) annual local business tax to their county. However, pursuant to Florida Statute 205.064, local governments cannot assess any such taxes or impose any such licensure requirements on farms.
In other words, you do not need a local business tax receipt to grow and sell microgreens in Florida.
That statement only applies to “business taxes” though, not real or personal property taxes.
Farmers Market Rules
If you want to sell your microgreens at a farmers market, then you’ll have to abide by the rules of that farmers market. Each farmers markets sets their own rules. Some may require you to have a food establishment permit even though the state does not require that of you. If so, you may just want to find another farmers market to sell at. However, some farmers markets are run by people who don’t pay attention to detail, so make sure when you reach out to ask about their rules that they understand you are actually a farmer selling a raw agricultural product, and then ask if you are still required to have an FDACS food establishment permit even though FDACS itself does not require you to be permitted.
Additionally, some farmers markets will only allow you to be a vendor if you have suitable insurance. A typical example would be a farmers market requiring that you have both public liability and product liability insurance policies, each covering up to $500,000.
Florida Tax Rules
There are 4 main tax benefits for microgreens farmers in Florida:
No sales tax on raw produce
No sales tax on powered agricultural equipment
No sales tax on electricity used for production
Agricultural property tax classification
Produce
Florida has a state-level sales tax of 6% and allows local jurisdictions to add up to 2% in additional sales tax. However, microgreens are not subject to either state or local sales tax in Florida.
Powered farm equipment
Any powered farm or irrigation equipment (e.g. fans, water pumps, tractors, refrigerators, etc) used solely for the storage or production of raw products on a farm are not subject to sales tax.
Electricity
Ordinarily, Florida taxes electricity at 6.95%. However, if you set up your microgreen farm so that the electricity used for production is separately metered, then you do not have to pay sales tax on that electricity. Since microgreen growing can be pretty energy-intensive, this is a significant cost saving. To claim this tax exemption, you must submit an exemption certificate to your utility company.
Agricultural property tax classification
If your microgreens farm is scaled out horizontally rather than vertically, and if you own the land on which your farm operates, then it may be worthwhile for you to apply for agricultural classification. If you receive that classification, then the property tax rate on your land (and possibly other parts of your property) will be reduced. Additionally, you aren’t generally required to obtain building permits before developing building and land improvements for property with an agricultural classification.
Additionally, if you happen to be an investor (or want to raise money from investors), microgreens businesses are actually a perfect fit for the opportunity zone business tax loophole.
If you want to start a microgreens business and grow it as fast as possible while also taking advantage of as many tax benefits as possible, I can help. Just email me through the form below.
Appendix A: Organizations that Matter for Florida Microgreens Farmers
(Florida) Department of Agriculture and Consumer Services (Dept 5)
Division of Fruit and Vegetables (Div 5G)
Division of Licensing (Div 5N)
Division of Plant Industry (Div 5B)
Division of Aquaculture (Div 5L)
Division of Food Safety (Div 5K) – (850) 245-5595
(Florida) Department of Health
(Federal) Food & Drug Administration
(Federal) United States Department of Agriculture (USDA)
(Private organization) Florida Farm Bureau
Appendix B: Business Resources for Microgreens Farmers
USDA Farmers Market Promotion Program (FMPP) – grants for agricultural businesses to develop & expand direct producer-to-consumer, producer-to-restaurant, and producer-to-retail market opportunities. Applications typically close in early May.
Appendix C: Why can’t a microgreens farm qualify as a cottage food business in Florida?
Florida’s cottage food law only applies to “low-risk” (think: baked or cooked & shelf-stable) foods. The list of foods specifically excluded from cottage food operations includes:
“Each food establishment regulated under [F.S. chapter 500 – food products] must apply for and receive a food permit before operation begins… Food permits are not transferable from one person or physical location to another. Food permits must be renewed [annually].”
“Advertisement” means any representation disseminated in any manner or by any means, other than by labeling, for the purpose of inducing, or which is likely to induce, directly or indirectly, the purchase of food.
“Contaminated with filth” applies to any food not securely protected from dust, dirt, and, as far as may be necessary by all reasonable means, all foreign or injurious contamination.
“Cottage food operation” means a natural person or entity that produces or packages cottage food products at the residence of the natural person or at the residence of a natural person who has an ownership interest in the entity and sells such products in accordance with F.S. 500.80.
“Cottage food product” means food that is not potentially hazardous as defined by department rule which is sold by a cottage food operation in accordance with F.S. 500.80.
“Department” means the Florida Department of Agriculture and Consumer Services
“Federal act” means the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 301 et seq, 52 Stat. 1040 et seq).
“Food” includes any raw, cooked, or processed edible substance. It also includes dietary supplements as defined in 21 U.S.C. 321(ff)(1) and (2).
“Food establishment” means a factory, food outlet, or other facility manufacturing, processing, packing, holding, storing, or preparing food or selling food at wholesale or retail. However, the term does NOT include a business or activity regulated under F.S. 413.051 (related to blind people operating vending stands), F.S. 500.80, F.S. chapter 509 (related to hotels and campgrounds), or F.S. chapter 601 (related to citrus fruits). The term includes tomato packinghouses and repackers but does not include any other establishments that pack fruits and vegetables in their raw or natural states, including those fruits or vegetables that are washed, colored, or otherwise treated in their unpeeled, natural form before they are marketed.
“Raw agricultural commodity” means any food in its raw or natural state, including all fruits that are washed, colored, or otherwise treated in their unpeeled natural form prior to marketing.
For the purpose of F.S. chapter 500, the selling of food includes the manufacture, production, processing, packing, exposure, offer, possession, and holding of any article of food for sale; the sale, dispensing, and giving of any article of food; and the supplying to or applying of food in the conduct of any food establishment.
As used in this chapter and in the agricultural laws of this state, unless the context otherwise requires, the following definitions will apply:
“Agriculture” means the science and art of production of plants and animals useful to humans, including to a variable extent the preparation of these products for human use and their disposal by marketing or otherwise, and includes aquaculture, horticulture, floriculture, viticulture, forestry, dairy, livestock, poultry, bees, and any and all forms of farm products and farm production. For the purposes of marketing and promotional activities, seafood shall also be included in this definition.
“Agricultural business products” means nonconsumable products used in the producing, processing, distribution, and marketing of consumable farm products, including, but not limited to, machinery, equipment, and supplies.
“Agricultural marketing facilities” means state-owned wholesale and retail markets managed by the Bureau of State Farmers’ Market.
“Commissioner” means the Commisioner of Agriculture.
“Department” means the Florida Department of Agriculture and Consumer Services (FDACS).
For the purpose of [F.S. chapter 597], “aquaculture” means the cultivation of aquatic organisms.
“Aquaculture producers” means those persons engaging in the production of aquaculture products and certified under F.S. 597.004.
“Aquaculture products” means aquatic organisms and any product derived from aquatic organisms that are owned and propagated, grown, or produced under controlled conditions.
“Commission” means the Commissioner of Agriculture.
“Department” means the Florida Department of Agriculture and Consumer Services (FDACS).
For the purpose of F.S. 604.15-604.34, the following definitions are used:
“Agricultural products” means the natural products of the farm, nursery, grove, orchard, vineyard, garden, and apiary (raw or manufactured); sod; horticulture; hay; livestock; milk and milk products; poultry and poultry products; the fruit of the saw palmetto (meaning the fruit of the Serenoa repens); limes; and any other nonexempt agricultural products produced in the state, except tobacco, sugarcane, tropical foliage, timber and timber byproducts, forest products as defined in F.S. 591.17, and citrus other than limes.
“Dealer in agricultural products” means any person, partnership, corporation, or other business entity, whether itinerant or domiciled within this state, engaged within this state in the business of purchasing, receiving, or soliciting agricultural products from the producer or the producer’s agent or representative for resale or processing for sale; acting as an agent for such producer in the sale of agricultural products for the account of the producer on a net return basis; or acting as a negotiating broker between the producer or the producer’s agent or representative and the buyer.
“Negotiating broker” means any person in the state engaged in the business of negotiating sales and purchases of agricultural products with a dealer in agricultural products for or on behalf of the producer or the producer’s agent or representative. The negotiating broker never takes title to the agricultural product involved in the sale or purchase or handles the proceeds therefrom.
“Net return basis” means the sale of agricultural products for the account of a producer, other than the seller, wherein the seller acts as the agent for the producer and pays the producer of such products the net proceeds after subtracting all authorized and allowable deductions.
“Producer” means any grower of agricultural products produced in the state.
Notwithstanding any provision of law to the contrary, any nonresidential farm building, farm fence, or farm sign that is located on lands used for bona fide agricultural purposes is exempt from the Florida Building Code and any county or municipal code of fee, except for code provisions implementing local, state, or federal floodplain management regulations.
Except as otherwise provided by law, a county, municipality, or other political subdivision of Florida may not regulate vegetable gardens on residential property. Any such local ordinance or regulation regulating vegetable gardens on residential properties is void and unenforceable. This section does not preclude the adoption of a local ordinance or regulation of a general nature that does not specifically regulate vegetable gardens, including, but not limited to, regulations and ordinances relating to water use during drought conditions, fertilizer use, or control of invasive species. As used in this section, the term “vegetable garden” means a plot of ground where herbs, fruits, flowers, or vegetables are cultivated for human ingestion.
Q: “I’d like to sell at some of the farmers markets listed on [FDACS.gov]. What do I do?”
A: “Each retail farmers market in Florida is independent and establishes its own vendor rules and regulations, so please contact the individual market you are interested in to obtain its vendor requirements. If you will be selling by weight, contact the Bureau of Standards at (850) 921-1590 to have your scales certified. If you plan to sell processed food items, check with the Division of Food Safety at (850) 245-5595 for the appropriate permits. If you are selling only fresh fruits and vegetables, you do not need a license or permit from the Florida Department of Agriculture and Consumer Services. Please check with your local tax collector for the occupational licenses and permits required in your county.”
For purposes of [21 CFR part 112], the term “covered produce” includes (but is not limited to) broccoli, Brussels sprouts, cabbages, Chinese cabbages (Bok Choy, mustard, and Napa), herbs (such as basil, chives, cilantro, oregano, and parsley), mustard greens, spinach, sprouts (such as alfalfa and mung bean), and mixes of intact fruits and vegetables. Produce NOT covered includes asparagus, most beans, beets (roots & tops), collards, and okra.
“Growth media” means material that acts as a substrate during the growth of covered produce (such as mushrooms and some sprouts) that contains, may contain, or consists of components that may include any animal waste (such as stabilized compost, manure, non-fecal animal byproducts or table waste).
The term “harvesting” applies to farms and farm mixed-type facilities and means activities that are traditionally performed on farms for the purpose of removing raw agricultural commodities from the place they were grown or raised and preparing them for use as food. Harvesting is limited to activities performed on raw agricultural commodities, or on processed foods created by drying/dehydrating a raw agricultural commodity without additional manufacturing/processing, on a farm. Harvesting does not include activities that transform a raw agricultural commodity into a processed food as defined in section 201(gg) of the Federal Food, Drug, and Cosmetic Act. Examples of harvesting include cutting (or otherwise separating) the edible portion of the raw agricultural commodity from the crop plant and removing or trimming part of the raw agricultural commodity (e.g., foliage, husks, roots or stems). Examples of harvesting also include cooling, field coring, filtering, gathering, hulling, shelling, sifting, threshing, trimming of outer leaves of, and washing raw agricultural commodities grown on a farm.
The term “produce” means any fruit or vegetable (including mixes of intact fruits and vegetables) and includes mushrooms, sprouts (irrespective of seed source), peanuts, tree nuts, and herbs. A fruit is the edible reproductive body of a seed plant or tree nut (such as apple, orange, and almond) such that fruit means the harvestable or harvested part of a plant developed from a flower. A vegetable is the edible part of an herbaceous plant (such as cabbage or potato) or fleshy fruiting body of a fungus (such as white button or shiitake) grown for an edible part such that vegetable means the harvestable or harvested part of any plant or fungus whose fruit, fleshy fruiting bodies, seeds, roots, tubers, bulbs, stems, leaves, or flower parts are used as food and includes mushrooms, sprouts, and herbs (such as basil or cilantro). Produce does not include food grains meaning the small, hard fruits or seeds of arable crops, or the crops bearing these fruits or seeds, that are primarily grown and processed for use as meal, flour, baked goods, cereals and oils rather than for direct consumption as small, hard fruits or seeds (including cereal grains, pseudo cereals, oilseeds and other plants used in the same fashion). Examples of food grains include barley, dent- or flint-corn, sorghum, oats, rice, rye, wheat, amaranth, quinoa, buckwheat, and oilseeds (e.g., cotton seed, flax seed, rapeseed, soybean, and sunflower seed).
The phrase “production batch of sprouts” means all sprouts that are started at the same time in a single growing unit (e.g., a single drum or bin, or a single rack of trays that are connected to each other), whether or not the sprouts are grown from a single lot of seed (including, for example, when multiple types of seeds are grown in a single growing unit).
“Small business” means a farm that is subject to any of the requirements of [21 CFR part 112] and, on a rolling basis, the average annual monetary value of produce (as defined in this section) the farm sold during the previous 3-year period is no more than $500,000; and the farm is not a very small business as defined below.
A “very small business” means a farm that is subject to any of the requirements of [21 CFR part 112] and, on a rolling basis, the average annual monetary value of produce (as defined in this section) the farm sold during the previous 3-year period is no more than $250,000.
For purposes of 21 CFR part 112, a microgreens business operating from a single location will most likely be considered a “primary production farm” engaged in “covered activities”. Some microgreens (such as beets) may not be considered “covered produce”. However, other microgreens (such as broccoli) will likely be considered “covered produce”.
Per 21 CFR 112.4, in general, microgreen farms doing more than $25,000 (2011 dollars) per year will be subject to the requirements of 21 CFR part 112. HOWEVER, per 112.5, if (1) a microgreens farm sells more than 50% of its food to qualified end-users (e.g. consumers, or restaurant or retail food store that is in the same state or not more than 275 miles from the farm) AND (2) the farm on average brings in less than $500k (2011 dollars) per year in revenue, then the farm is eligible for a qualified exemption and associated modified requirements under 21 CFR part 112. See section 112.6 for the modified requirements.
In addition, you are subject to the following modified requirements:
(1) When a food packaging label is required on food that would otherwise be covered produce under the Federal Food, Drug, and Cosmetic Act or its implementing regulations, you must include prominently and conspicuously on the food packaging label the name and the complete business address of the farm where the produce was grown.
(2) When a food packaging label is not required on food that would otherwise be covered produce under the Federal Food, Drug, and Cosmetic Act, you must prominently and conspicuously display, at the point of purchase, the name and complete business address of the farm where the produce was grown, on a label, poster, sign, placard, or documents delivered contemporaneously with the produce in the normal course of business, or, in the case of Internet sales, in an electronic notice.
(3) The complete business address that you must include in accordance with the last two requirements must include the street address or post office box, city, state, and zip code for domestic farms, and comparable full address information for foreign farms.
Additionally, per 112.7, you must maintain certain records:
(a) You must establish and keep records required under this provision in accordance with the requirements of subpart O of this part, except that the requirement in § 112.161(a)(4) for a signature or initial of the person performing the activity is not required for sales receipts kept in the normal course of business. Such receipts must be dated as required under § 112.161(a)(4).
(b) You must establish and keep adequate records necessary to demonstrate that your farm satisfies the criteria for a qualified exemption that are described in § 112.5, including a written record reflecting that you have performed an annual review and verification of your farm’s continued eligibility for the qualified exemption.
“Raw agricultural commodity” means any food in its raw or natural state, including all fruits that are washed, colored, or otherwise treated in their unpeeled natural form prior too marketing.
Subpart M requirements apply to the growing, harvesting, packing, and holding of all sprouts, except soil- or substrate-grown sprouts harvested without their roots. If your farm is eligible for a qualified exemption under 112.5, then you don’t need to comply with subpart M (but you should follow the testing procedures as much as possible anyway for safety). See 112.144 for details of testing.
Effective cost cutting can be the difference between staying in business and going bankrupt. So, where do you start?
You should NOT start by cutting advertising or marketing expenses if your customer acquisition cost (CAC) is less than 30% of your annual gross profit per customer (AGPC). If you don’t know if your CAC is less than 30% of AGPC, then you need to measure that.
You can calculate CAC by dividing the total amount of money you spend on advertising in a month by the total number of new customers that you acquire in that month through advertising. So, for example, if you spend $3000 on Facebook ads in a month and get 10 new customers, then your CAC is $3000 / 10 = $300.
If each of those customers signs up for a subscription that costs $100 per month, then your AGCP is 12 x $100 = $1,200. That means your CAC ($300) is just 25% of your AGCP ($1,200). That’s good! Don’t stop spending money on those Facebook ads or else your cost cutting will start killing your business!
On the other hand, suppose each customer only signed up for a $29/month subscription. Then your AGPC would only be 12 x $29 = $348, and your CAC ($300) would make up a whopping 86% of your AGPC. That’s not very good, and you should probably cut that Facebook ad spend.
Beyond cutting unprofitable advertising spend, here are several additional ways you can cut costs in your business:
1. Shop around for insurance
Businesses often carry a variety of different types of insurance. General liability insurance, errors & omissions (E&O) insurance, commercial property insurance, vehicle insurance, malpractice insurance, workers’ compensation insurance, cyber insurance, etc. By shopping around, you may be able to find equivalent insurance coverage that costs significantly less. This cost cutting strategy is most effective for high liability businesses such as:
Construction companies
Roofing contractors
Surgery centers
Tow truck companies
Apartment complexes
Medical practices
However, many other businesses including retail stores can often save thousands of dollars per year.
2. Automate as much as possible
Almost every business has repetitive tasks than can be partially or completely automated, saving time and therefore payroll expense (or freeing up that time for getting more business).
Here are some common examples of tasks that can be automated:
Email marketing campaigns
Data entry
Social media posting
Cold email outreach
Invoice processing
Customer service request routing
Syncing data (possibly using Zapier) between CRM, Quickbooks, ERP, practice management systems, project management software, calendar, and/or any other software tools used by the company.
3. Optimize staffing
Do you have a general manager who spends half their time doing front desk work that you could hire someone for minimum wage to do? Do you have a marketing manager on your payroll who costs twice as much as hiring an agency while only giving you half the performance of one? Do you have a customer service employee who costs 5 times as much as hiring a customer service employee from the Philippines? Those are opportunities for cost cutting.
In general, ask yourself this question: Can some of the work being done by your highly paid employees be done just as well by lower paid employees?
If so, cut back on the hours of the higher paid employees or let them go altogether and increase the hours of lower paid employees who can do the same work (or hire more lower paid employees to cover the work). In some instances, you may even be able to replace full-time employees in the United States with more qualified full-time employees in the Philippines or Columbia. This works especially well for staff working in low-level backoffice support roles such as phone customer support or executive assistance.
However, cutting employee costs should be done carefully. Here are some common mistakes business owners make when cutting payroll:
They cut hours for all employees. Instead, they should cut hours for their least productive employees while maintaining or increasing the hours of their best employees. If you don’t know which employees are most productive, start by measuring that (measuring isn’t as hard as you may think).
They cut hours for hourly employees but don’t cut salaried employees. Most businesses pay much more to their salaried employees. If a business has a single salaried employee who isn’t necessary, that usually represents $30,000 at minimum of annual expense that can be cut.
If you’d like help figuring out how to cut costs without damaging your business, send me a message through the form below.
