Start a hydroponic farm business by following these 9 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple step guide to starting your hydroponic farm business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a hydroponic farm business?
You need a space to grow your produce and other items. Most hydroponic farms require a greenhouse. Greenhouses can be built, rented, or purchased in all different sizes. Plan on spending anywhere between $10,000 and a couple hundred thousand dollars to build such a space. Greenhouses can be as small as a couple hundred square feet or as large as several thousand square feet. The exact cost hinges on the size of the facility you have in mind. Your hydroponic farm will require seeds, water solvent, lighting, grow tunnels, climate control systems, UV filtration, racks, towers, and nutrient reservoirs. Plan on spending at least several thousands of dollars for these supplies. Furthermore, your business will require office supplies, a computer for research, a high-speed internet connection, a desk, chairs, and possibly a cash register. You will also need a vehicle to transport your plants and produce to customers. Budget at least a thousand dollars for the office sundries. You can use your own vehicle if it has ample cargo space.
What are the ongoing expenses for a hydroponic farm business?
The hydroponic farm requires labor, insurance, seeds, equipment, utilities, delivery vehicle upkeep, and a facility such as a greenhouse to permit growth without outside interference. Hydroponic farm employees typically make between $8 and $12 per hour. It will cost at least a couple hundred dollars per month to maintain and fuel your delivery vehicle. Budget several hundred dollars for utilities as your hydroponic farm will require a significant amount of water and light to spur plant growth. Equipment won't last forever. Plan on spending at least $200 per month for equipment upkeep and equipment replacement.
Who is the target market?
The target market is local restaurants and supermarkets. However, some hydroponic farms sell directly to the public.
How does a hydroponic farm business make money?
This business makes money by selling produce, flowers, plants, grass, and other green items to customers. Customers include everyday people, restaurants, supermarket stores, schools and universities, and other facilities that serve food or buy plants.
How much can you charge customers?
You can charge a wide variety of prices. The exact prices you charge hinges on the items you grow and sell. The prices also hinge on your local market's supply and demand. Specialize in a certain type of produce, grass, flower or other item and customers will be more than willing to pay a significant amount of money for your unique offering.
How much profit can a hydroponic farm business make?
It is possible to make several hundred thousands of dollars per year. However, if you start out with a fairly small greenhouse or face a competitive market, your profits might not be that lofty. If you find enough customers, grow delicious produce, and have little competition, it is possible to grow your hydroponic farm business into an entity that generates millions of dollars per year.
How can you make your business more profitable?
Consider selling directly to customers. Subscription farming will also create an additional revenue source. If you sell items beyond produce, you will expand your customer base. Consider growing and selling herbs, general plants, flowers, grass, and even turf.
What will you name your business?
Choosing the right name is very important. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
After registering a domain name, consider setting up a professional email account (@yourcompany.com). Google's G Suite offers a business email service that comes with other useful tools, including word processing, spreadsheets, and more. Try it for free
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your hydroponic farm business is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
For most small businesses forming an LLC is a great option, but if you still want to weigh all your options check our our article, What Structure Should I Choose for My Business?
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
Federal Business Licensing Requirements
There are federal regulations regarding what can and cannot be added to, sold as, and processed with food. Attached is a resource from the Food and Drug Administration detailing the process of starting a food business: How to Start a Food Business
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a hydroponic farming business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Certificate of Occupancy
A hydroponic farming business is generally run out of a greenhouse or other indoor space. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a hydroponic farming business.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your hydroponic farming business will be in compliance and able to obtain a CO.
When selling food, you will need licensing from a local health department; all establishments serving food are required to pass a health inspection. Tips for faring well on health inspections
STEP 7: Get Business Insurance
Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a hydroponic farm business
If you plan on primarily selling your produce and greenery to supermarkets and restaurants, traditional marking will not suffice. The relationships you form with the owners and managers of such facilities are of the utmost importance. Attend food-related conferences, networking events, and other get-togethers to establish relationships with local business owners who need produce, flowers, plants, grass, and other items you grow at your hydroponic farm.
Recommended: Get started with local advertising for your business with a $300 credit from Yelp.
How to keep customers coming back
Your price must be competitive. The quality of your produce and other plants must be equal or superior to that of your competitors' offerings. It will also help to offer unique produce that local restaurants and supermarkets can't obtain from other farmers in the area. Thrive in such a niche and you will have no trouble attracting and retaining customers.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Hydroponic Farm Business In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
If you are looking for a way to improve the health and well-being of your community, starting a hydroponic farm business is worth your time, effort and money. Local buyers will certainly appreciate the opportunity to buy produce, flowers, and other aesthetically pleasing forms of greenery from a hydroponic farm that doesn't damage the local environment. If you have any sort of interest in growing food or plants and would like to do so in a manner that is environmentally-friendly, a hydroponic farm is perfect for you.
What happens during a typical day at a hydroponic farm business?
The typical workday at a hydroponic farm involves planting seeds, ensuring the watering system is functioning as designed, providing sufficient light, and preparing grown plants for sale. The grown plants must be plucked and transported to customers. Additional workday activities involve researching new hydroponic farming methods, ordering supplies, cleaning the facility, and performing market research regarding customers and prices.
What are some skills and experiences that will help you build a successful hydroponic farm business?
Obtain a thorough understanding of horticulture. Study the nuances of other successful hydroponic farms. Make sure you are in this business for the right reasons. If you are insistent on providing people with delicious and healthy food that doesn't harm the environment, you will eventually succeed. When in doubt, perform additional research on the best hydroponic farming methods. If possible, visit other hydroponic farmers and pick their brains. It will also help to start out by working at a hydroponic farm to gain a comprehensive understanding of the basics involved in this unique business.
What is the growth potential for a hydroponic farm business?
This business is quite popular at the moment. The produce and plants grown at hydroponic farms are in heavy demand. There is an emerging trend toward purchasing produce from hydroponic farms as they are quite environmentally-friendly. Establish enough relationships with local buyers, grow high-quality produce and other forms of greenery, meet or beat competitors' prices and this business will prove to be a raging success. If you make enough money, you can add additional greenhouses or other indoor growing environments in your town or adjacent towns to gradually grow the business.
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a hydroponic farm business?
Perform extensive research before committing to a specific hydroponic farm. There are numerous types of systems ranging from top drip to ebb and flow, wick, deep water culture, and beyond. You will also have to settle on a medium, lighting, and specific plants to grow. These are not decisions to take lightly. Conduct market research to find out what types of produce local restaurants and supermarkets are looking for. Be sure to cover all your bases in terms of the legal aspect of food sales. Any business that sells food requires licensing from the local health department. If you serve food on-site, your facility must pass a health inspection.
How and when to build a team
You need to build a team right away unless you plan on growing produce out of a small greenhouse. Add employees to monitor and facilitate plant growth, deliver produce to customers, collect the proceeds of sales, order supplies and equipment, and maintain the facility.
Read our hydroponic farm business hiring guide to learn about the different roles a hydroponic farm business typically fills, how much to budget for employee salaries, and how to build your team exactly how you want it.