Mayala, born and raised in BC, has been familiar with farming since childhood. Her grandparents owned a 5-acre piece of land in a farming town about an hour’s drive away from the house she had lived in until age 21. As an only child, she often got a chance to stay with her grandparents for parts of the summer, when her parents traveled or wanted time to themselves. Mayala was always happy to help out on the farm and take some fresh food home for her parents.

Mayala’s grandpa, Rudy, recently passed away and the farm is too much for Grandma Lily to handle on her own. Hence, she has reached out to Mayala for help. Since Mayala currently works as a financial advisor, she is connected to many individuals who may be interested in investing in a farm. For this year, a neighbor, Tyler, has agreed to rent the farm as is and will attempt to earn a profit off the yield. For rent, he will be paying Lily a single payment of $10,000 on July 31st. He isn’t willing to commit to the same deal next year.

Currently, the farm has raspberry plants that are nearing the end of their lives, with declining yields. Last year, the revenues amounted to $24,000, with farm-related expenses of $5,500. This year, Lily expects yields to decline 5%, with another decline of 5% anticipated for the year after. She expects that the plants would certainly need to be replaced at that point, as they would be 10 years old.

Mayala is looking at options on what to do about the farm. She believes that the house and farm can sell for $800,000. However, it is the only home her grandma has ever known in Canada and believes it will be difficult to convince her to sell, even with a giant profit (it was purchased forty-five years ago for $11,000). By selling the farm, Lily would be able to buy a $650,000 townhouse in the city and invest the remaining money at a 4% rate.

Another option is to find a long-term renter for the farmland. Lily believes that Tyler offered her a sweetheart deal out of friendship, but won’t be interested in paying as much in the future when there are higher expenses (such as clearing land and replanting crops). She believes that it is possible to find someone who will pay $7,000 a year for the next five years for the farmland. She has Mayala to help her determine if this is a good option.

Mayala has asked her grandma if hiring people to do the work is possible and Lily believes it can be done. However, a decision must be made on what to grow on the land in one or two years. Replanting raspberry (expected life of ten years) would require the purchase of 2,500 plants at $10 apiece. Additionally, there would be estimated labor of $2 per plant and direct materials of $1 per plant. The raspberry bushes would collectively yield about 29,000 of fruit in their first year and this would grow by 5% year-on-year for the next two years. Then, the yield would remain steady for four years before declining by 5% a year until the plants’ end of life. On average, the raspberry has been sold for $0.80 per pound and Lily expects that trend to continue.

Alternatively, 1,500 blueberry bushes could be planted. These would cost $8 each, with $2 of direct labour per bush and $2 of direct materials per bush. However, the yield would start off much slower, with only 5 pounds per plant expected in year one. This would increase incrementally at a 10% rate for nine years. Then, peak production would be reached and would be expected for the remaining life of the plants (another 40 years). Blueberries have historically sold for a slightly higher price and Lily projects $1 a pound on average in upcoming summers. With either blueberries or raspberries, there would be about 120 labor days each year (non-replanting year), with seven hours of labour on average. Lily believes paying various laborers would average out to $20 per hour.

As a final consideration, Mayala has a unique idea. She is wondering if the land can be cleared and then rented out in small pieces to people in town who don’t have gardening/farming space. Mayala has calculated that she can create 200 ten-by-ten feet “blocks” separated by walking paths. Each block can be rented out to farmers/gardeners for $200 per summer. Additionally, she can offer watering and weeding for $20 per block per month for those who can’t commit to visiting their patch regularly. To do this work, there would be full-time worker employed for four months of the year, earning $20 per hour. This would be an added cost on top of regular farming expenses.

Mayala believes she can advertise about these patches in the local paper for $100 a month for four months and achieve 60% of total rental capacity in the first year (the same advertising strategy would be used each year). Of course, this is an estimate so the rest of the land may need to remain vacant just in case. She believes the occupancy rate will increase by 10% a year (from 60% to 70% to 80%, etc) until the farm is full. Under this arrangement, the land would need to clear each fall, so costs could add up quickly. Regardless, Lily is interested in pursuing the idea if it is profitable enough. In addition to profitability analysis, Mayala wants to know about the tax and business ethics elements of all plans.

Whenever the land needed to be cleared (as it would need to be to grow new plants), Rudy paid his neighbor Gary a $3,000 fee to help out with his tractor. Lily is wondering if buying a second-hand tractor for $10,000 is a worthwhile investment. It would have an expected remaining useful life of six years with no salvage value. It would provide added benefits of $2,000 per year, in addition to the ability to clear land with the help of a hired hand. The regular expenses related to the tractor would amount to $1,000 per year, with an extra $1,500 in materials and labor for mass clearing the acreage. Mayala isn’t sure about this investment and wants advice on it. She wants specifics on accounting and tax treatment of not only the tractor but her grandma’s vehicle which is used for both personal and business purposes.

Finally, Mayala desires to spend more time with her grandma. While she is making $70,000 a year as a financial advisor, her job is flexible enough that she can drop her working hours by 10% and help out on the farm. She is wondering if only earning $60,000, so she can commit about 100 hours a year to helping Lily is a worthwhile cause. She has heard that business management, specifically managerial accounting can be tricky, so she wants details on what needs to be done under each scenario and what her own time would be best spent on (working as a financial advisor full-time, helping with labor on the farm, helping her grandma with business, etc).

Advise Mayala on what to do with the farm and her career path. Produce a business report, including a comprehensive analysis, recommendations, and any questions you may need to ask Mayala.

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