Finances, Fundraising, & Business Management – Hawaii Farmers Markets Management Toolkit

Finances, Fundraising & Business Management

FINANCES, FUNDRAISING & BUSINESS MANAGEMENT

Doing Business as a Farmers Market in Hawai’i

All farmers markets, regardless of size, location or business structure, have various rules, permits and fees to pay to local, state and federal governments. Every market’s leadership is also expected to meet certain standards for good governance. This can be a lot to consider for a very small organization, and fortunately, there are good resources to help understand what’s important.

Fundraising Resources for Your Farmers Market

For most farmers markets, vendor booth fees do not cover the costs to operate a market nor help pay for the additional costs to expand programming or buy new equipment. More and more markets are looking to their local communities and funders to cover these costs.

Best Practices for Farmers Market Bookkeeping

Bookkeeping is one of those behind-the-scenes jobs that makes a significant difference in how efficiently your farmers market operates. And yet, between figuring out your farmers market organization’s budget and tracking weekly sales, fees, and tokens, accounting can get complicated quickly. We are lucky in Washington to have an organization, Food From Farms, that is dedicated to helping farmers markets navigate the complexities of accounting.

DOING BUSINESS AS A FARMERS MARKET IN HAWAI’I

By Karen Kinney and Colleen Donovan

Updated 10-31-2016

Based on a presentation at the WSFMA conference by Madhu Singh, Chief Legal Officer, of the Foundry Law Group.

Regardless of whether your farmers market is a nonprofit or for profit entity, there are certain legal requirements you will likely need to follow. From the government’s perspective, a farmers market is expected to comply with all applicable licenses, taxes, laws, codes, rules and permitting, regardless of how it is incorporated.

Registrations and Licenses

Hawai’i requires businesses and organizations to register and have certain licenses, as do many cities.

Hawaii Business License information is available from the Department of Taxation.

Markets may also need to file an annual report.

Some nonprofits will also need to register with the attorney general.

Federal Employee Identification Number. Like other businesses, most farmers markets need an EIN and must submit federal tax forms.

If your market is a nonprofit, review this great overview:

“Stay Up to Date with the Attorney General”

Governance

All entities require certain documents to operate legally. These documents must be available upon request. Whether a nonprofit or for profit, the Board of Directors is responsible for Meeting Minutes; Maintaining Budgets; and establishing Policies and Procedures. The board is also responsible for creating internal checks and balances to prevent problems and any conflict of interest.

For Profit

Nonprofit

Organizational Documents

Articles of Incorporation and Bylaws

Who are the shareholders?

Operating Agreements

Resolution

Articles of Incorporation and Bylaws

Board Member Agreements

Indemnification coverage

Resolutions and Meeting Minutes

Responsibilities

Duty of Loyalty

Duty of Care

Duty of Good Faith

Duty of Loyalty

Duty of Care

Duty of Good Faith

The Three “D’s”

The main legal responsibilities of a nonprofit board are often summarized in the “three Ds“:[1]

Duty of care: Board members are expected to actively participate in organizational planning and decision-making and to make sound and informed judgments.
Duty of loyalty: When acting on behalf of the organization, board members must put the interests of the nonprofit before any personal or professional concerns and avoid potential conflicts of interest.
Duty of obedience: Board members must ensure that the organization complies with all applicable federal, state, and local laws and regulations, and that it remains committed to its established mission.

In addition, the board has a fiduciary responsibility to maintain oversight of the market’s finances and accountability. Board members must evaluate financial policies, approve annual budgets, and review periodic financial reports to ensure that the organization has the necessary resources to carry out its mission and remain accountable to its donors and the general public.

Limiting Liability

The world is full of potential lawsuits where someone feels aggrieved by the actions of someone else. Unfortunately, farmers markets are not immune to that. Fortunately, there are resources to help boards of farmers markets make sure they have systems and procedures in place to help them make disciplined decisions that make sense and are considered fair. The liability arises when someone perceives a board member, director, staff or volunteer has made a decision that is unfair in some sort of way.

There are several things markets can do to limit their liability.

Farmers markets should have written agreements (e.g., release of liability/waiver) and policies for employees, contractors and volunteers. The market is liable for the acts of its employees, contractors and volunteers.

Create organizational structures and processes with the intent to limit liability in mind.

Clarify and document who can act as agent of organization (i.e. acting in capacity as owner)?

Be sure to sign contracts appropriately. For example, John Smith, Owner/President/Managing Member/Board Member/, WSFMA Association

Maintain separate bank accounts

Keep up with required annual reports with the Attorney General, any Business Licenses, and local Licenses or Permits. One insider tip is to put it on your calendar

Your market should also consider getting insurance for Directors and Officers (D & O), General Liability, Errors and Omissions, and Special Events.

In addition, the board should ensure the market itself has policies and procedures so that vendors, staff and volunteers understand the framework within which they are operating.

Market Day: The market should have general policies and procedures to cover market day operations, decision making and the myriad decisions that can affect a vendor. Most of these should be included in the Market Rules.

Social Media: The market should have a designated person overseeing all social media, including the website. The board should clarify protocols to have in place to ensure appropriate content is displayed online.

Photos: Farmers markets are exciting places to take beautiful photos. If you take photos or have a photographer that takes photos at the market, consider a “Waiver of Use” policy. What about folks who post their pic and tag the market? Do you have a photo release form?

For more information and prior to making any decisions, please consult your professional legal counsel.

FUNDRAISING RESOURCES FOR YOUR MARKET

By Colleen Donovan & Karen Kinney

Updated: 4-19-2021

Raising external funds to support core operations or programs is a necessity for most farmers markets. WSU’s 2010 farmers market survey found that vendor stall and membership/application fees are the most important source of revenue for 89% of Washington farmers markets. However, only a quarter of markets secured 100% of their market revenue from vendor fees[1].

There’s No Free Money (sorry!)

As anyone involved in fundraising knows, “free” money is a lot of work! And different fundraising strategies require different skills, time, timing, and administrative capacity. There is always an “opportunity cost” for the time your market spends fundraising instead of attending to its core operations. The key is to plan ahead so that your market knows what it is investing in fundraising, especially in terms of people power, and what it hopes to accomplish.

Sometimes a “break-even” fundraising event like a Harvest Dinner may also serve important, non-financial goals such as affirming ties with the business community, retaining or recruiting new volunteers, and building the market’s vendor and shopper base. And don’t forget to include your market’s fundraising expenses and revenue goals in the annual budget.

Fundraising Evaluation Matrix

One way to collectively evaluate “great ideas” (including new grant opportunities) is to agree where it falls in the Fundraising Evaluation Matrix.

The first step is to quantify the investment that the market will need to make, including in-kind contributions. This may come in the form of additional staff time, adding staff work during a critical time in the market season, direct expenses, or rechanneling donations or volunteers’ good will for a fundraising project instead of core market operations. In the case of grants, there is the added administrative work and reporting. And in the case of federal grants, this can be substantial.

The next step is to quantify the projected return your market can reasonably expect from pursuing that fundraising opportunity. If it is a new endeavor and you don’t know, then estimate a range and put the low end of the range into your budget. Here again, consider all of the various types of “returns” to your market.

Is it money? If so, how much? And when will your market be able to access the funds?
If funding, is it “restricted” to specific budget categories and programs? Or “unrestricted” meaning you can spend it however you need to.
Does it invest in longer-term goals such as building visibility for the market that can attract vendors, shoppers, or sponsors?
Does it add core shoppers to your market’s mailing list, facilitating direct communication?
Does it contribute to a policy goal or advocacy project that your market is working towards?

There is no “right” answer. The purpose of the Matrix is to think through “great ideas” and get everyone affected on the same page and committed.

Fundraising Strategies

The most common fundraising strategies for farmers markets, beyond vendor fees, are sponsorships, fundraising events, and grants. Markets also sell merchandise which tends to function mostly as promotions rather than bringing in the big bucks. Many markets also have “Friends of…” or Community Memberships that can increase their financial support. There are pros and cons to each strategy and what’s right for your market depends on the capacity you have to implement.

Strategy

Investment Needed

Pros/Cons

Sponsorships

Sponsorship “program” with goals, strategy, staff time, sponsorship levels with what sponsor gets; and a “thank you” protocol

Cultivation and outreach to sponsors

Ability to promote sponsor and investment in banner or whatever means market uses

Unrestricted funds

Amounts may be from $100 to 1,000 or more

May be time consuming

Relatively low impact on accounting

Have to renew annually

Vulnerable to economic downturns

Fundraising events

Venue and theme and some sort of draw

Event planning skills, including promotions, managing lots of moving parts, and herding volunteers

Connections to chefs, entertainers, or other talent

Infrastructure to pull off event such as tables, chairs, A/V, decorations, etc.

Photographer or videographer to capture event

Appropriate insurance

Thank you’s

Potential for in-kind donations from supporters and vendors

Can be a real crowd-pleaser and community builder; maybe even fun!

Usually labor intensive

Proliferation of farm dinners and similar events increases competition for “foodie” dollar

Returns are unrestricted unless they are being raised for specific program or cause

Grants – private Major donors

Time and connections to cultivate relationships with private foundations and philanthropists

Projects that meet funders guidelines

Project development and management experience

Being able to fit funded projects into your budget

Reporting to funders

May want personal site visits

May need 501c3 status

Private grants can be unrestricted or restricted – from a foundation or individual, and from modest to incredible amounts.

Individual grants or large donations can be very low maintenance once established.

However, they can be unpredictable too and suddenly change interests or funding plans

USDA and other Public Grants

Most of the above, plus:

Excellent accounting capacity

Strong policies and practices around internal controls

Strong project development skills, especially for multi-year projects

Ability/desire to work with partners

Proposal writing and budgeting skills

Tends to operate on a reimbursement basis so cash flow

Experience with a specialized vocabulary needed to know how to read and interpret RFA

Reports required

Almost always restricted funds

Predictable and usually have consistent funding priorities

Don’t need to be 501c3 to apply

Will fund staffing and some overhead

Can be large grants for multiple years

Friends of the Market and Community Memberships

Will need “program” that maps out funding levels and benefits

Excellent information management and database of members

Annual renewals required

Strong “thank you” protocols

Raises unrestricted funds

May help to have 501c3 status

Builds connection to shoppers and other supporters

Whatever your strategies, keep in mind the three golden rules of fundraising.

People give money to people. This means that having a good relationship with the funder or donor is essential to success.
Success breeds success. People like “winners” and being part of something that has energy and momentum. This means that getting a success (even a small one) needs to be highlighted and used to generate the perception of success.
You have to make the ask. Many of us tend not to like to ask for anything, let alone money. And yet the most common reason people don’t give, is because they aren’t asked. Likewise, if you have a great market and your enthusiasm shows through, people feel really great about being able to meaningfully help!

Examples of HI FM Fundraising Tools

Hana Farmers Market’s sponsorship program.
Malama Kauai’s donation information.
Hawaii Farm Bureau’s grant resources info.

Project Development Resources

The Project Plan map graphic showing relationships between different parts of a proposed project
Project Planning Worksheet guide to 10 key questions to help you develop your proposed project

Good Fundraising Resources for Farmers Markets

Assessing Your Organization’s Fundraising Readiness from Institute for Conservation Readiness
Fundraising Strategies for SNAP Match Programs at Farmers Markets Compiled by the Farmers Market Fund and Oregon Farmers Markets Association (2016)
Organizational Details: Funding from Market Umbrella
Grantcraft website
Funding Information Network: Free resources for nonprofits and individuals seeking grants brochure is from Wenatchee, but these centers are located around the state
USDA “Know Your Farmer Know Your Food” website
USDA Ag Marketing Service “Grants and Opportunities” in the 2014 Farm Bill

BEST PRACTICES FOR MARKET BOOKKEEPING

By Sheri Muntean, CPA, PhD

Updated: 10-31-2016

Bookkeeping is one of those behind-the-scenes jobs that makes a real difference in how efficiently your farmers market runs. And yet, between figuring out your farmers market organization’s budget and tracking weekly sales, fees, and tokens, accounting can get complicated quickly. This overview shares best practices for farmers market bookkeeping that are based on my experience both as a CPA and providing accounting, consulting, and tax services to the Anacortes Farmers Market and the Skagit Valley Farmers Market Coalition.

Many of the forms mentioned here are available as files to download free from my website: www.foodfromfarms.org. Started in 2016, Food from Farms is dedicated to supporting the growth and sustainability of alternative currency programs, such as SNAP and food access incentive programs, at farmers markets and other farm direct venues.

Accounting Software

While it may be tempting to keep things simple and stick with Microsoft Excel, or for the smaller markets, rely on your checkbook, that is no longer recommended as a best practice. Two of the key reasons are that these systems:

Do not adequately track all of your cash-flow issues (age of outstanding checks, tokens, etc.); and they
Encourage reporting at a transaction-by-transaction level, which tends to lead the markets to micro-manage instead of focusing on the bigger picture.

Fortunately, there are more and more accounting software options available for cheap or even free through the Internet. The trick is knowing which one is best for your farmers market organization. The below table compares four different accounting software products: QuickBooks Online, FreshBooks, Wave, and Xero.

Software

Features and Costs

QuickBooks Online

www.quickbooks.com

QuickBooks is the accounting application with the largest market share. New to the QuickBooks approach is an inexpensive online edition that offers an uncomplicated way to do market accounting. It is the most robust of the inexpensive bookkeeping options, running from $9 a month to $39 a month (ask your accountant about wholesale pricing).

FreshBooks

www.freshbooks.com

FreshBooks is very much more oriented toward basic bookkeeping, rather than true double-entry accounting. It has strong invoicing, time and expense keeping, and optional credit card processing for accepting electronic payments. There’s a free version of FreshBooks if your market has simple needs. If you intend to use MarketWurks to help manage your market, they hope to have their software integrate with FreshBooks in the future.

Wave

www.waveapps.com

Wave offers a relatively complete set of bookkeeping tools, and for the most part they are free (you do occasionally get hit with ads for products and services from other companies — that’s what pays the bills). Wave offers several products — accounting, invoicing (and invoicing from mobile devices), personal financial management, and receipt management.

Wave does charge for its payroll service, as well as the ability to accept credit card and electronic payments.

Xero

www.xero.com/us

Xero offers three plans, starting as inexpensively as $9 a month and rising to as pricey as $70 a month. The least-expensive plan limits you to sending five invoices a month, paying five bills, and reconciling 20 bank transactions, while the two more expensive plans remove these caps and add payroll (in many states, including Washington) for either five or 10 employees, though additional employees can be accommodated for an extra cost.

Adapted from Needleman, Ted. 2015 March 30. “Cloud Accounting: Side by Side.” Accounting Today. http://www.accountingtoday.com/news/accounting-technology/cloud-accounting-side-by-side-74132-1.html

Ted Needleman has also created a more complete side-by-side comparison in his article about “cloud accounting” (March 15, 2015).

Chart of Accounts

One of the foundational tools for any bookkeeping systems is the Chart of Accounts. The Chart of Accounts lists all the “accounts” or primary types of Income and Expenses that your market will be managing. If you work with a bookkeeper or CPA it is recommended that they review your Chart of Accounts as sometimes specific accounts are needed for doing your taxes and managing the organization.

Typical Income Accounts for farmers markets include:

Income Accounts

Income Amount

Percentage of Income

Vendor Booth Fees

$35,000

70%

Vendor Annual Fees (registration, membership)

3,000

Sponsorships

5,000

10%

Grants & Donations

4,000

Fundraising

2,500

Other Income

$35,000

Total Income

$50,000

100%

Typical Income Accounts for farmers markets include:

Expense Accounts

Expense Amount

Percentage of Income

Employees & Contractors

$32,500

65%

Legal & Professional Services

1,500

Education Expenses (Staff training, e.g. the WSFMA conference)

Supplies & Equipment

1,600

Rents & Utilities

4,000

Advertising & Promotions

1,500

Market Music & Events

2,250

Dues (e.g. WSFMA)

650

Insurance

1,000

Taxes & Licenses

2,500

Travel (e.g. to conference)

Miscellaneous

500

Total Expenses

$48,000

96%

Note: If your market manages an alternative currency and incentive program, then you will need to include additional expense and income accounts.

See the Balance Sheet example, below, for suggested asset and liability accounts.

Financial Reporting and Budgets

Two of the key financial reports to update, review, and share when discussing market operations are the “Budget vs Actual” report and “Balance Sheet.”

“Budget vs. Actual” Report

The “Budget vs. Actual” report shows what your market budgeted for its fiscal year in one column and compares that to your actual expenses and income. In other words, it compares your Profit and Loss report to your budget for the same period. At the beginning of the year you plan activities and estimate the expenses and revenue based on past experience or research. This is the foundation of any budget.

Expenses should reflect what the organization expects to happen in the next year. They are financial expectations based on past experience or research into new costs.
Income shows your plans for how to pay for these expected expenses. What are your assumptions? What is your plan of action? Typically, this includes collecting stall fees and any fundraising the market can do.

The “Budget vs. Actual” report has the important job of showing where the market is on any given date relative to what the market budgeted in order to accomplish its plans for the year. If market sees that their expenses exceed income more than they want it to, it can (1) cut expenses, (2) work on increasing income, or (3) cease operations. Monitoring your Budget vs Actual report can help your market avoid unpleasant surprises.

Balance Sheet

A balance sheet is important because it shows the liabilities compared to your assets and cash reserves. So, it tells you if you have enough cash to cover what you owe now and pay for other projected expenses. We recommend having a separate account to hold money aside to cover all of the liabilities your market may have from tokens and other alternative currencies. Your market’s Balance Sheet should include:

Checking Account. This is the operating account to deposit fees and pay operating expenses

EBT Account (Checking). You will only need this account if you are processing credit and debit cards, EBT cards, or other currencies. It is a reserve account to auto deposit debit/credit batches, EBT batches, and funds reserved to cover other alternative currencies. This should hold a balance large enough to cover the associated liabilities at all times.

Token Liabilities. You will only need this account if you are processing credit and debit cards, EBT cards, or other currencies. This equals tokens distributed ($) minus (less) tokens redeemed ($).
- Debit/Credit Tokens Outstanding
- EBT Tokens Outstanding
- Allowance for Doubtful Tokens Outstanding – reduces liability to amount likely to be redeemed by the public

Incentive Liabilities

Payroll & Sales Tax Liabilities

Note that in the following example that the “EBT Account” balance exceeds the “Token Liabilities.” Also, the “Token Liabilities” are adjusted by an allowance to what the organization expects to actually see used by the public in the future.

Assets

Checking – Operating

$5,000

Checking – EBT Account – $5,500

5,000

Restricted (e.g. by grantor for incentives)

500

Accounts Receivable – Grants (amounts earned, not yet received)

1,600

Total Assets

$12,100

Liabilities

Accounts Payable – Grants (amounts owed, not yet received)

$1,000

Payroll Liabilities

1,500

Sales Taxes Payable (on market merchandise)

100

Gift Certificate Liability

100

Token Liabilities – $5,000

6,000

Allowance for Doubtful Tokens

(1,000)

Total Liabilities

$7,700

Equity

Retained Earnings

$2,400

Net Income

2,000

Total Equity

$4,400

Total Liabilities and Equity

$12,100

Some farmers markets are part of a coalition of farmers markets operating a joint incentive program such as the one funded by the Food Insecurity Nutrition Incentive (FINI) grant. This can make bookkeeping extra interesting. If you have questions about how to account for and track the individual market and group of markets’ data, please contact Food From Farms (info@foodfromfarms.org). We have developed templates and systems to address “coalition bookkeeping” and reporting.

Tracking “Multiple Currencies”

Best Practices for Debit and Credit Tokens

Enabling your shoppers to use their debit and credit cards to get market tokens is a proven strategy to increase your vendor sales. However, working with tokens can get complicated quickly. Here are several best practices to help you have good records and minimize errors and irregularities, and related costs. Investing in good systems and records upfront will actually save your market time and money in the long run. No one can afford the pain of searching down numbers and problem-solving issues, not to mention being caught with inadequate reserves.

Maintain accurate records of outstanding tokens and incentives. This will make sure you have enough cash reserves to cover potential token redemptions in the future.
Do not allow your vendors to pay their booth fees with tokens. This muddies the water when doing token counts and calculating your outstanding liability.
Track all non-token credit card transactions (e.g., donations, retail purchases, fundraiser ticket sales). This information is needed in order to have accurate liability numbers.
Work to make sure that your paper trail is complete in case you are ever audited by the IRS or other agency. This is important if you receive federal grant funds.

SNAP EBT Transactions & Incentive Tracking

Market Day

If you are processing credit cards or EBT cards for customers and giving them a token which you then exchange for money when they are redeemed by a farmer, you will want to be collecting a great deal of information from the vendors on market day. You can find tools to do this at foodfromfarms.org.

All farmers markets need to be collecting sales data from their vendors to report to their respective sponsors (for example the Kapiolani Community College reports their sales to Hawaii Farm Bureau Federation). The back of this form allows for the collection of that data. If you are tracking currencies and using an envelope to collect fees, be sure to use the signature columns, assuring that the counts are verified by both a market and vendor representative.

Recordkeeping

As stated earlier, all farmers markets need to be collecting sales data from their vendors to report to their respective sponsor. There is a worksheet on the foodfromfarms.org website that will help you compile that data as well as other data important to running your market. It will also help you compile any token and incentive information you may have by vendor and calculate the checks you need to write to them.

It also allows you to reconcile your token and incentive liabilities.