How to Start a Mushroom Farm

Start a mushroom farm by following these 10 steps:

1. Plan your Mushroom Farm
2. Form your Mushroom Farm into a Legal Entity
3. Register your Mushroom Farm for Taxes
4. Open a Business Bank Account & Credit Card
5. Set up Accounting for your Mushroom Farm
6. Get the Necessary Permits & Licenses for your Mushroom Farm
7. Get Mushroom Farm Insurance
8. Define your Mushroom Farm Brand
9. Create your Mushroom Farm Website
10. Set up your Business Phone System

We have put together this simple guide to starting your mushroom farm. These steps will ensure that your new business is well planned out, registered properly and legally compliant.

Exploring your options? Check out other small business ideas.

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 will you name your business?
• What are the startup and ongoing costs?
• Who is your target market?
• How much can you charge customers?

Luckily we have done a lot of this research for you.

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 Mushroom Farm Name Generator

If you operate a sole proprietorship, you might want to operate under a business name other than your own name. Visit our DBA guide to learn more.

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.

What are the costs involved in opening a mushroom farm?

The startup expenses for a mushroom farm are minimal.

Business owners need a space for growing mushrooms. This doesn’t need to be a large space -- 500 square feet is big enough to grow 12,000 pounds of mushrooms a year, according to Profitable Plants. Business owners should be able to control the temperature, humidity, and light in the space, though.

Many business owners already have a space in their home that meets these requirements. Those that don’t might only have to purchase a space heater, humidifier, or dehumidifier.

The other main upfront costs are buying growing medium and spores, but these are both inexpensive. Straw, cardboard used coffee grounds and many other cheap materials can serve as growing mediums. Mushroom spores can be purchased for just a few dollars.

What are the ongoing expenses for a mushroom farm?

The ongoing expenses for a mushroom farm business are minimal. They include new growing material, additional spores, and utility costs.

Who is the target market?

A mushroom farm business’ ideal customer is a restaurant that focuses on using locally sourced ingredients. A restaurant will have regular orders that provide stable income. A restaurant that focuses on serving locally sourced foods will be less likely to purchase their mushrooms from a large supplier that’s in another state.

How does a mushroom farm make money?

A mushroom farm makes money by selling harvested mushrooms. Mushrooms might be sold by the pint, quart, or pound.

How much can you charge customers?

Specialty mushrooms typically retail for $16 per pound. Oyster mushrooms wholesale for between $6 and $8 per pound, and other types of specialty mushrooms have similar wholesale prices.

Because most people don’t want to spend $16 on mushrooms, retail sales are usually done by the pint or quarter-pound. Wholesale transactions normally are by the pound.

How much profit can a mushroom farm make?

A mushroom farm business that grows 12,000 pounds of mushrooms and only sells to wholesale clients could make between $72,000 and $96,000 annually. Selling retail in addition to wholesale would significantly increase the business’ revenue. Since the ongoing expenses are minimal, most of this revenue would be profit.

How can you make your business more profitable?

Many mushroom farm businesses add a revenue stream by assembling grow-your-own mushroom kits. These may be in cardboard boxes, logs or some other medium. Offering classes on growing or using mushrooms is another way to increase revenue and profits.

STEP 2: Form a legal entity

The most common business structure types are the sole proprietorship, partnership, limited liability company (LLC), and corporation.

Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your mushroom farm is sued.

You can form an LLC yourself and pay only the minimal state LLC costs or hire one of the Best LLC Services for a small, additional fee.

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!

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.

Open a business bank account

Besides being a requirement when applying for business loans, opening a business bank account:

• Separates your personal assets from your company's assets, which is necessary for personal asset protection.
• Makes accounting and tax filing easier.

Get a business credit card

Getting a business credit card helps you:

• Separate personal and business expenses by putting your business' expenses all in one place.
• Build your company's credit history, which can be useful to raise money 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.

Make LLC accounting easy with our LLC Expenses Cheat Sheet.

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.

State & Local Business Licensing Requirements

• Certain state permits and licenses may be needed to operate a mushroom farm. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.

Services Contract

In business where services are provided on an extended basis, a services contract is often put in place outlining terms and conditions of service.

Mushroom farming businesses should require clients to sign a services agreement before starting a new project.  This agreement should clarify client expectations and minimize risk of legal disputes by setting out payment terms and conditions, and service level expectations. An example of a service contract can be found here.

Labor safety requirements

It is important to comply with all Occupational Safety and Health Administration requirements.

Relevant requirements include:

• Employee injury report
• Safety signage
• Etc.

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.

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.

Is this Business Right For You?

Anyone who enjoys working with their hands and interacting with people may be well-suited for running a mushroom farm business. Growing mushrooms is a hands-on task, and having an ability to connect with people can help business owners share their product with potential customers.

A mushroom farm can be started as a part-time business while working another job. Mushrooms require a little attention each day, but they aren’t too demanding, and they can be tended to at any time of the day or night. It’s easy to fit growing mushrooms around other obligations.

What happens during a typical day at a mushroom farm?

The process of actually growing mushrooms involves three steps:

• preparing growing medium, which takes a few hours and should be done once per week
• misting growing mushrooms, which takes a few minutes and must be done daily
• harvesting mature mushrooms, which takes a few minutes and should be done every day or two

In addition to these tasks, mushroom farm business owners also must find customers, package harvested mushrooms, and deliver mushrooms.

What are some skills and experiences that will help you build a successful mushroom farm?

In order to run a mushroom farm, business owners must know how to grow mushrooms. Many companies offer courses and seminars on growing these fungi. For instance, Fungi for the People offers a week-long course every few months, and Radical Mycology has courses in many different states. Additionally, both Mushroom Mountain and The Mushroom Growers’ Newsletter maintain lists of upcoming conferences and educational events.

Business owners may also want to consult the American Mushroom Institute or the North American Mycological Association. Both organizations have lists of online materials that cover mycology.

Finally, many books about growing mushrooms and starting a mushroom business are available. A few titles include Organic Mushroom Farming and Mycoremediation, Growing Mushrooms for Profit and Starting a Mushroom Growing Business on a Shoestring. Some of these books provide valuable insights into growing mushrooms commercially, while others are helpful resources that can be consulted after a class is over.

What is the growth potential for a mushroom farm?

A mushroom farm business may be a small, one-person operation, or it might grow into a large company that has multiple locations. Detroit Mushroom Factory, which is run by just two people, is an example of a small mushroom farm. Ostrom’s is a much larger company that has customers located throughout the Northwest United States.