How to Start a Mushroom Farm

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Quick Reference

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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Industry Trends

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.

Costs to Start a Mushroom Farm

Here are 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

Steps to Starting a Mushroom Farm

Step 1: Write your 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.

How to write a business plan
Free sample business plans

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 a 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.

RelatedComparison of Business Entities

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 business and personal finances in separate business bank and credit card accounts makes it easier to track the income and expenses of the 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

Step 9: Get Insurance

A mushroom farm needs several types of insurance for full coverage:

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.

Insurance policies will vary. 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: Hiring 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 accounting for your business

How Much Can You Potentially Make Owning a Mushroom Farm?

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.

Things to Consider Before Starting a Mushroom Farm

Running a mushroom farm or any business will have its challenges.  You need to be prepared and make sure that you know what you’re getting into.

Marketing and acquiring customers will be your biggest challenge and an ongoing expense.  It will take some time to build a brand and a customer base of stores or wholesalers to earn a steady income.

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.

Talking to other mushroom farm owners for tips on starting a business and what prices they charge can help keep you from making mistakes.

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