How to Start a Mushroom Farm

Overview

How to Start a Mushroom Farm

Mushrooms are always a favorite for cooking, and some are used for medicinal purposes as well.  If you have some land and the space for growing, a mushroom farm could be a great opportunity for you.

Business Overview

A mushroom farm grows various types of mushrooms and sells them to grocery stores, at farm markets, or to wholesale distributors.  A mushroom farm may also process the mushrooms and sell them in cans or jars.

Industry Summary

According to Markets and Markets, the mushroom cultivation industry size was $16.7 billion in 2020 and is expected to grow to $20.4 billion by 2025.  Oyster and shiitake mushrooms are popular and relatively easy to grow. Button mushrooms are expected to be the largest market segment due to their potential health benefits. As consumers learn about the medicinal benefits of mushrooms, more exotic types of mushrooms can be grown.

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The popularity of mushrooms is expected to increase due to their low fat and cholesterol content, high nutrient content, and potential to support immunity and prevent certain diseases.  Health consciousness is on the rise, so the industry is expected to grow at a healthy rate.

Target Market

Your target market will be health-conscious consumers or just people who love fresh mushrooms.

Skills, Experience, and Education Useful in Running a Mushroom Farm

There are several specific skills that you will need to open a mushroom farm.

  • Experience in farming is helpful, particularly if you have grown mushrooms before.  Knowledge of different types of mushrooms is also helpful.
  • Business knowledge and experience. You will need to have at least some basic knowledge of marketing, finance/accounting, and human resources.
  • People skills. You’ll need to be able to build rapport with your customers so that you retain them as customers and keep them coming back.

Checklist for Starting a Mushroom Farm

If you’re thinking about starting a mushroom farm, it’s important to do your research first. Here is a checklist to help you get started.

Step 1: Write a Business Plan

After coming up with the idea, the next step in starting your mushroom farm should be to write a business plan.  The business plan will make you focus on some important aspects of the business, such as who your customers are, how you plan to reach them, projecting sales and expenses, your value proposition to use for marketing, and more. You’ll also need to do some research to calculate exactly what your startup expenses will be and what your ongoing expenses will be.

Not only will a bank require you to have a business plan if you need financing, but multiple studies have shown that having a good business plan increases the odds of starting a successful business. Writing the plan helps you think through all the aspects of the business and then serves as a guide as you begin.

Related: How to write a business plan

Step 2: Name the Business

Finding the perfect mushroom farm name can be challenging. Not only does the name have to reflect what you do and be appealing to customers, but it also has to be available to use. You can check your state’s website to see if the name is available and register your name.  Your name should make you stand out, reflect your brand, and tell potential customers exactly what you do.

Step 3: Form a Business Entity

A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

When deciding on which business entity is best for a mushroom farm, it normally comes down to the sole proprietorship and Limited Liability Company.

A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay. The corporation can be a good choice because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.

That leaves the sole proprietorship and LLC.

The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.

Related: Guide to forming your LLC
 

Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.


Some popular LLC formation services include:


IncFile - $0 plus state fees & free registered agent for 1 year!

IncAuthority - $0 plus state fees & free registered agent the first year!

ZenBusiness - $49 plus state fees & free registered agent for 1 year!

Step 4: Select your Location

You need a location that is large enough for your operation with the right space to grow your mushrooms. A common misconception is that you need a lot of space to start a mushroom farm. In reality, depending on the scale and types of mushrooms being grown, a small space can be fine to start with.

Regardless of the farm’s size, particular care needs to be taken where temperature, humidity, lighting, and CO2 can be controlled to optimize the consistency of the crop.

Related: Choosing a business location

Step 5: Apply for Business Licenses and Permits

While there are no licenses specifically for a mushroom farm, there are general business registrations that you will need, such as a sales tax permit and an Employer Identification Number.  

Related: Common business licenses, permits, and registrations by state

Step 6: Find Financing

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a mushroom farm is another.  In order to get a loan, the borrower(s) will need to have good credit and be able to invest 15-25% of their money towards the total start-up costs.

Related: Finding the money to start a business

Step 7: Open a Business Bank Account

Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
 
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.

Step 8: Get your Marketing Plan in Place

A mushroom farm will need to set aside a budget to cover marketing costs on a continuous basis. Common marketing techniques for a mushroom farm include selling wholesale to chefs, grocery stores, and small food retailers.

Mushroom farmers can make more money by selling directly to customers, which can be done at farmer’s markets and on the farm using social media.

Related: Low-cost ideas to market a new business

One important marketing task is developing an online presence. A website developer may be out of the budget, but Wix makes it easy for non-technical people to get a website running quickly and affordably.

Step 9: Get Business Insurance

There are several types of insurance to consider when starting a mushroom farm. A few of these include:
General liability insurance can help protect you from third-party claims of bodily injury and property damage.
Professional liability insurance protects you from claims of professional errors or negligence that result in a financial loss.
Worker’s compensation insurance covers expenses like medical bills and legal fees that a business might face if an employee were ever hurt while working.

The cost to insure a mushroom farm will vary depending on a number of factors. To get the most accurate idea of what to budget for insurance, request quotes from multiple providers. When comparing the quotes, consider not only the premiums but also how the plan exclusions, coverage limitations, and deductibles compare.

Related: Common types of insurance a business may need

Step 10: Hire Employees

You may need employees to help you run your mushroom farm.  Make sure that you select people with appropriate experience.

In addition to salary costs, your budget will also need to include other employee-related expenses. Workman’s comp insurance, unemployment insurance, and paid time off are common expenses that a business will need to cover when hiring staff.

Related: Hiring your first employee

Step 11: Set up an Accounting System

Setting up an accounting system for your mushroom farm is critical to the long-term success of your business.

Staying on top of taxes not only keeps the business out of trouble with the government but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

Related: Setting up the accounting for your business

The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:

- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.

Find bookkeepers in your local area or use a service like 800Accountant.

How much does it cost to start a mushroom farm?

Here are some of the typical costs you will face when you open a mushroom farm.
– Indoor and outdoor space with a concrete floor preparation $5,000 – $10,000
– Grow room setup – $2,000 +
– Equipment such as humidifiers $3,000 – $5,000
– Initial supplies such as straw or sawdust – $100
– Mushroom spores and growing supplies $500

How much does a mushroom farm owner make?

Mushroom farming is an excellent business option as a side business or a farmer looking to diversify their operation.  The cost of mushroom growing supplies is quite low, and once you’re established, the crop can be grown year-round and grows fast.

Mushrooms range in price from $6 – $12 per pound.  In just a 500 square foot space, you can yield around 12,000 pounds per year.  If you sell at an average of $8 per pound, you would make $96,000 per year.

It will also take some time for your mushrooms to grow before you start making money.  To ensure the speed of growing and yield, your mushrooms will need the proper care to grow well. Mold, bugs, and other fungi can impact the yields of your crop. Mold is perhaps the biggest threat and has to be constantly monitored and immediately removed, so contamination doesn’t spread.

Are there grants to start a mushroom farm?

It’s extremely rare to find a grant to start a mushroom farm. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.

Legitimate federal grants can be found at Grants.gov and you can check on your state’s economic development office to see if they have any grants available.

What is the NAICS code for a mushroom farm?

The NAICS code for a mushroom farm is 111411, which is classified as Mushroom Production.

The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.

Related: What is a NAICS code and how to find yours

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