Start a hydroponic farm business by following these 10 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 guide to starting your hydroponic farm business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
Check out our How to Start a Business page.
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 much can you charge customers?
- 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 important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Hydroponic Farm Business Name Generator
When registering a business name, we recommend researching your business name by checking:
- Your state's business records
- Federal and state trademark records
- Social media platforms
- Web domain availability.
It's very important to secure your domain name before someone else does.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your hydroponic farm business is sued.
Form Your LLC
Read our Guide to Form Your Own LLC
Recommended: You will need to elect a registered agent for your LLC. LLC formation packages usually include a free year of registered agent services. You can choose to hire a registered agent or act as your own.
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?.
Small Business Taxes
Depending on which business structure you choose, you might have different options for how your business will be taxed. For example, some LLCs could benefit from being taxed as an S corporation (S corp).
You can learn more about small business taxes in these guides:
There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.
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.
Additionally, learning how to build business credit can help you get credit cards and other financing in your business's name (instead of yours), better interest rates, higher lines of credit, and more.
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.
Recommended: Read our Best Banks for Small Business review to find the best national bank, credit union, business-loan friendly banks, one with many brick-and-mortar locations, and more.
Open net-30 accounts
When it comes to establishing your business credit, net-30 vendors are considered the way to go. The term "net-30," which is popular among vendors, refers to a business credit arrangement where the company pays the vendor within 30 days of receiving goods or services.
Net-30 credit terms are often used for businesses that need to obtain inventory quickly but do not have the cash on hand.
Besides establishing business relationships with vendors, net-30 credit accounts get reported to the major business credit bureaus (Dun & Bradstreet, Experian Business, and Equifax Business Credit). This is how businesses build business credit so they can qualify for credit cards and other lines of credit.
Recommended: Read our guide on the best net-30 vendors so you can start building business credit now, so you never have to worry about cash flow in the future. Keep in mind that poor cash flow is the #1 reason businesses fail!
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
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
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.
If you aren't feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we'll give you helpful tips and advice for creating the best unique logo for your business.
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.
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.
Still unsure about what kind of business you want to start? Check out the latest Small Business Trends to help inspire you.
STEP 9: Create your business website
After defining your brand and creating your logo the next step is to create a website for your business.
While creating a website is an essential step, some may fear that it’s out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
Here are the main reasons why you shouldn’t delay building your website:
- All legitimate businesses have websites - full stop. The size or industry of your business does not matter when it comes to getting your business online.
- Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
- Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don’t need to hire a web developer or designer to create a website that you can be proud of.
Using our website building guides, the process will be simple and painless and shouldn’t take you any longer than 2-3 hours to complete.
STEP 10: Set up your business phone system
Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That’s not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.
There are many services available to entrepreneurs who want to set up a business phone system. We’ve reviewed the top companies and rated them based on price, features, and ease of use.
Recommended: Find the best phone system for your business; check out our review of the Best Business Phone Systems 2021.
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.
Want to know if you are cut out to be an entrepreneur?
Take our Entrepreneurship Quiz to find out!
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.
Learn from other business owners
Want to learn more about starting a business from entrepreneurs themselves? Visit Startup Savant’s startup founder series to gain entrepreneurial insights, lessons, and advice from founders themselves.
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.