It’s springtime in Michigan and everyone is eager to emerge from winter and start something new. Barns are being cleaned out, 4-H animals are being sourced, and crops are being planted. This love for warmth and earthly things has led to many inquiries about alpacas and lots of questions about starting an alpaca farm.
We’ve sold six alpacas in the last few weeks and all six have gone to brand new alpaca farms. These farms had questions, our website visitors have questions, and I’ve realized I’m answering the same questions over and over again. I thought I would convert my knowledge and these answers into a how-to guide for future alpaca farmers.
Now let me qualify this information by stating I’m not a long-term alpaca farmer who has been in the industry for decades. Our alpaca farm isn’t that old, so it’s just the opposite. That said, I do have lots of experience with small business startups, operations, accounting, event management, sales, and marketing. So, while my alpaca farm isn’t decades old, this isn’t my first attempt at launching and managing successful businesses.
I’ve taken this experience and knowledge with me and applied it to other activities. While I still might blurt out hay when I mean straw, our country life and alpaca farm are both benefiting from all my city girl experience.
Success Doesn’t Just Happen, You Have to Plan for It
I launched my first business venture back in 2009 and it was right in the middle of a major recession. I will never forget sitting inside my CPA’s office and feeling slightly overwhelmed with everything that was in front of me. I asked her a question about future activities, and she told me not to think that far in advance because most small businesses never make it past the first year. My inner voice immediately told me it was time to find a new CPA.
My CPA underestimated me. It’s now 2020 and my digital marketing agency is still going strong. I knew I could do it and I never wavered. I stumbled a lot along the way, but with every stumbled I learned. With every mistake, I grew. With every success, I celebrated and rejoiced. And with each year, I’ve been incredibly thankful.
I was successful because I took the time to do research, create a strategy, formulate a plan, and methodically execute that plan. Success typically doesn’t just happen. It’s the person who makes it happen. And if you ask me, success is a core result of planning.
I’ve turned this love for strategy and planning into our alpaca business. I know my competition, my target market, my marketing channels, and plan for execution. Let me take you through the steps needed to research and plan for a successful alpaca farm.
22 Steps for Starting an Alpaca Farm and Business
- Visit local alpaca farms. Before you get too far ahead of yourself, take the time to visit local alpaca farms. Drive across the state if you have to, just make sure you get yourself acquainted with the animals and you have an opportunity to see the operations of a working farm. We visited three farms before making a purchase and I’m so thankful we did. It was immediately clear that one farm was worthy of our purchase and two were not even in the ballpark.
- Go to a few alpaca shows. When we first started out, my husband and I drove all the way from Michigan to Pennsylvania to go to an alpaca show. We wanted to better what made one alpaca higher quality than another. I wanted to see the judges in action and hear their comments. I wanted to meet and touch those award-winning alpacas. It was worth the drive. In one weekend wee learned more than I thought possible.
- Walk through key decision criteria. In the next section, I will provide ten criteria I believe all new alpaca owners should consider. They range from alpaca quality and budget to zoning and acres. As you contemplate these items, you’ll start to answer some of the key questions needed for formulating your business plan.
- Validate your local zoning laws and regulations. Alpacas are livestock animals and they require agricultural zoning. In most areas, you will not be able to have alpacas living in your house or your backyard. We live in Northern Michigan and we are within Ag2 zoning. This zoning allows us to build barns, create elaborate fencing, and raise livestock. If you do not know what zone you are in or what restrictions you have, contact the local zoning board.
- Verify farm tax deductions and benefits with your accountant or CPA. Starting an alpaca farm for profit will require a substantial investment. Before you start spending money, it is wise to speak with your accountant or CPA. Farm accounting is different than other small businesses, so you’ll want to talk through your options and verify your CPA is familiar with farm accounting, applicable deductions, and depreciation schedules.
- Create a business plan. Yes, I said a business plan. Don’t skip this step. Think through your objectives and goals, your target market, your marketing plans, and your timeline. Since this is such a big step, I’ll walk through twelve elements of a solid business plan below.
- Select a farm name and verify it is available. If you want to deduct your expenses on your income taxes, you’ll need to demonstrate you are a true farm that was created to generate revenue. This will require you to create a formal business. This means you’ll need a business name. You’ll want to verify this business name isn’t already taken in your state or protected with a trademark. You can check with your local state government or perform a free business name search
- Create a farm LLC and designate a registered agent. Once you have your business name picked out, you need to register that with the state by forming a farm LLC. While you can opt for a sole proprietorship, I would not recommend it. A sole proprietorship does not offer enough liability and asset protection as a Limited Liability Company (LLC). To register for an LLC, you’ll need to submit articles of organization with your state. You can do this yourself or you can hire a third party to form the LLC for you. In many United States you will also need to establish a registered agent to manage the paperwork for you.
- Get an EIN or federal tax ID. An EIN is short for an employee identification number. You need this for filing taxes with the IRS, to obtain a business bank account, and for business permits and licenses. You can obtain an EIN for free from the Internal Revenue Service or you can pay a third party to register an EIN for you.
- Obtain a sales tax license. Depending on what you plan on selling, you may need to collect sales tax. Sale tax can be calculated at the state, county, and city level and it will have varying requirements for products, services, and ancillary items like shipping charges. In the state of Michigan, we need to collect sales tax for sales of finished goods like yarn or clothing products.
- Review insurance options for liability and livestock. High-end alpacas can be very expensive, and some farms chose to insure these animals. While this insurance is optional, liability insurance should not be. If you plan on having any visitors on your farm, you need to obtain business liability insurance or an insurance rider for an umbrella insurance policy. Insurance companies like Farm Bureau specialize in these types of situations.
- Prepare your barn or shelter. Alpacas need shelter from extreme cold and heat, so you’ll need to have a barn or similar shelter ready for their arrival. When we bought our first five alpacas the farm who sold them to us was very good about coaching my husband through barn setup. Thankfully, we had just built a brand new gambrel roof barn, so all we needed to do was configure the interior for adult females and a cria pen.
- Install appropriate fencing to protect the alpacas from local predators. Alpacas need fencing, but it isn’t to keep them contained. Alpacas need fencing to protect them from local predators. In our area, this equates to bears and coyotes. We have a no-climb fence that prevents coyotes from entering and serves as a scratching post for our lady alpacas.
- Locate available alpacas for sale and qualify farm owners. Like any industry, the alpaca industry has a wide variety of farms. Some are experienced and take great care of their animals and others, well, not so much. You want to locate a farm that has healthy alpacas, that are well cared for, and that are on a regular schedule for feeding, shots, and shearing. And be prepared for the farm to qualify you as much as you are qualifying them. If they don’t ask you about shelter, protection, and herd size it would in your best interest to find a new farm and a new set of alpacas for sale.
- Obtain medications. Alpaca need to be protected from parasites and they will require medication for sickness. Parasite control varies by area, but it is a necessity. Meningeal worm (or m-worm) can quickly kill an alpaca, so you have to protect your herd. Your breeder can tell you what protocol is being used and what they recommend based on your geographical area.
- Purchase hay, pellets, and minerals. Alpacas have special dietary needs and you’ll need to be prepared with specific hay, feed pellets, and free choice minerals. The pellets are optional if minerals are available, however, I recommend them because they make great treats for bonding and training your alpacas. Ask your breeder what pellets your new alpacas are used to and if they can recommend a local hay source. We started with a store brand pellet, and then once my husband was educated on the topic, he created his own feed formula that we have manufactured for us.
- Purchase supplies like water buckets, feeding bins, and halters. These last minute items are the basic requirements for feeding, watering, and walking your alpacas. Tractor Supply Company or Light Livestock Equipment and Supply will have everything you need.
- Locate a vet familiar with alpacas. Alpaca vets are few and far between. Most traditional large animal vets know very little about alpacas and they are hesitant to care for them. We are lucky to have an experienced alpaca vet close by and we also have access to university help within Michigan State University and Ohio State. Plan ahead on this step, because you may have a harder time locating assistance than you expect.
- Locate a shearing team and secure a spot on their upcoming shearing schedule. Alpaca shearing is not for the faint of heart. It’s part art and part dexterity. Plan early and locate a qualified shearing team as soon as you obtain your first alpaca herd. They’ll have set schedules for moving through your area and they will book up months in advance. Your attention to detail and proactive planning will be well worth it when springtime comes, and the alpacas need their winter coats removed. Alpacas must be sheared annually and before warm weather arrives, so you cannot skip this step.
- Sign up with the American Alpaca Association (AOA). The Alpaca Owners Association is the world’s largest alpaca association with around 4,000 members and over 270,000 alpacas in its registry database. The AOA oversees an internationally recognized pedigree registry, Expected Progeny Difference (EPD) program, alpaca show system, judge training program, and industry magazine (Alpacas Magazine). The AOA also provides education to current and prospective alpaca owners throughout the world along with a national marketing program for alpacas and alpaca fiber products.
- Initiate the ownership transfer of your alpacas to your AOA account. While pet alpacas will most likely not be registered with the AOA, higher quality livestock will be registered in the national database. You’ll want to transfer these alpacas to your farm once you’ve paid for your alpacas in full.
- Review business licenses and permits. For the most part, you do not need to have a business license for an alpaca farm. If you decide to sell the manure as fertilizer, this changes. As soon as the word fertilizer is mentioned, the need for a business license pops up. Research what you need with your local state’s government website. Browse through a list of Michigan business licenses and permits.
10 Considerations and Decision Points
While you won’t immediately have answers for all of these items, they are data points you need to think about as you embark on your journey into alpaca farming. From alpaca ownership to fleece usage and tax deductions, start thinking about these items sooner rather than later.
- Huacaya vs. Suri – There are two types of alpacas. The most common is the Huacaya, which is a round alpaca that has fluffy fleece. The less common type is a Suri alpaca, which has fibers that hang and are silkier. About 80% of the United States’ alpaca population is Huacaya. Most alpaca farms will have either Haucaya or Suri alpacas. Few farms will offer both.
- Rescue vs. Pet vs. Fiber vs. Show – When starting your alpaca farm, you’ll need to locate a starter herd. You have the choice of rescues, pet quality, fiber or hobby farm quality, or the high-end show quality. While rescue alpacas are generally free, they do have their limitations and can present with unexpected issues. Pet alpacas will be inexpensive, although they will not offer quality fiber for producing yarn or birthing crias. A hobby farm or fiber quality alpaca will be higher than pet quality, but lower than show quality. They will have strong fiber, but not high enough crimp, luster, or density to make the show circuit. Show alpacas are the most expensive and these will come with great fiber, solid conformation, and excellent genetics. Some farms will specialize in just one level of alpaca, while others (like our farm), will opt to offer a variety.
- Boys vs. Girls – Male and female alpacas cannot live in the same area and a starter herd cannot have a mix of boys and girls, so you’ll need to determine your preferred sex. I’ll be honest in the fact that there is no perfect gender. Our girls include loving alpacas and divas and our boys do too. For us Captain and Levi are just as big of love bugs as my girl Nibbler. We can love on our boys and girls equally. That said, the decision for sex should be influenced by your business plan and budget.
- Young vs. Old – The average alpaca lives to be in their late teens and some live over twenty years. This gives you lots of options when considering alpaca age. Young alpacas will live longer, and you’ll have more of an opportunity to imprint on them, but they will also be more expensive. Older alpacas will be more set in their ways, but they are also very relaxed, and they make lovely companions. The decision for age should be dictated by your business plan, the usage of your fleece, and the desire for birthing crias.
- Fleece Usage – I always ask new alpacas farmers how they plan to use their fiber. This answer will help decide the alpaca quality that is needed. If you’d like to produce fiber for yarn and clothing, you’ll need an alpaca that has fiber under 30 microns. If you’re crafty and felt is more your style, an older or lesser quality alpaca will do just fine. Knowing how you’d like to use your fiber harvest will help you determine the quality and age of alpaca you’d need to purchase.
- Herd Size – I cannot stress enough that alpacas are herd animals and they must be purchased in a minimum of three. Alpaca farmers should not sell you any lower number as the alpaca will be under undue stress and will eventually fail in physical health because of it. We started our herd with five alpacas so we could begin our farm with a number large enough to produce a strong and healthy environment. If your prospective breeder will sell you only one or two alpacas as a starter herd, look for another farm. This is a strong sign they are not educated on alpaca farming or they care little about the health of the animal.
- Available Acres – Alpacas will need ample space to roam or they will need a solid source of hay. If the alpacas are going to free range on pasture, plan for one acre for 2-8 alpacas. If this isn’t available, make sure you have a solid hay source ready to deliver year-round hay.
- Zoning Restrictions – I touched on this before and I’ll mention it again. Know your zoning for raising livestock, building farm stores, and operating an agritourism business. If you live in Michigan, research the Right to Farm program, which will give agricultural businesses additional rights for farm revenue generation. The Right to Farm program will support the usage or local farm stores and agritourism so alpaca farms can be sustainable for the long-term.
- Tax Deductions – Farming does come with financial benefits and one of these great benefits is income tax deductions. The IRS has the Farmer’s Tax Guide that is available to help you dig through what is available for you and your new farm.
- Budget – This is the hardest consideration for me to manage. I set a budget for an alpaca purchase, then I fall in love with a specific alpaca or lineage and my budget falls apart. Nibbler is a result of me ignoring my budget, because I fell in love with her silly personality. I’ve already written a lot on this subject and you can read through my alpaca farm budget at Alpaca Cost and Understanding the True Expense of Care.
12 Elements of an Alpaca Farm Business Plan
A good business plan will guide you through starting and managing your business. You’ll use your business plan as a roadmap for how to structure, operate, and grow your new alpaca business. There are many different types of business plans, but I tend to stray towards the KISS (keep it simple, stupid) principle. I make sure I include everything to get me started and keep me on track. I also make sure I remove anything that doesn’t really fit with alpaca farming.
As you read through these business components, I’d like you to keep one important point in mind. The alpaca farms that are making substantial profits are doing so by design. They have solid business plans that support a variety of revenue streams. They don’t just sell their fiber. Instead, they offer animal sales, farm stores, and market their goods through local farm markets or craft shows.
People often say the alpaca industry isn’t profitable and I will rebuke that statement. Alpaca farms tend not to be profitable because they fail to run the farm like a business. They don’t create a business plan and they don’t have a strategy for reaching a specific target market.
You absolutely can be successful with alpaca farming if you take the time to formulate a business plan and execute on this plan.
Below are the 12 elements of my business plan and what my husband and I are using to guide us through our adventure in alpaca farming:
- Description – This simply describes your business. Listing out who are you, who you serve, and what you plan to offer in the form of goods and services. This will all offer a nice overview of your farm and future activities.
- Mission Statement – A mission statement is a short paragraph of why a farm exists and it provides an overview of the farm’s overall goals. These are usually a few sentences that provide the “why” behind the who. Our mission statement involves wanting to give back to the community around us. It’s important to us and it will be an important part of our future farming activities.
- Target Market – Your target market is the groups of people you’d like to serve. Or, in other words, who will you sell goods and services to? Defining your target market, understanding their needs, and knowing their wants will help you craft an offering that will resonate with them. When you connect with and serve your target market, you set yourself up for success.
- Competitors – Your competitors could include local farms, national farms, big box retailers, and virtually any entity that exists online. Once you define your mission statement and target market, you’ll be able to list your competitors. Researching and knowing your competitors is an important part of setting yourself up for success.
- Market Analysis and Opportunities – You’ll need a good understanding of the alpaca industry and your preferred target market. Competitive research will show you what other alpaca farms are doing right, and it will help you see what you can offer that exceeds the current state of your competition.
- Market Threats – Market threats could include the economy, competitors, technology, resources, environment, and really anything that could hamper your ability to execute your business plan. Knowing what these threats are will help you navigate around them.
- Differentiators – Explain the competitive advantages that will make your alpaca farm and business a success. What sets you apart from other farms? What will you offer or do differently than these existing farms? How can you improve the alpaca industry or your local area?
- Revenue Streams – Explain how your farm will actually make money. List this out and document any ideas that you’ve thought of or came up with during your brainstorming efforts. This could include animal sales, alpaca boarding, fiber sales, alpaca clothing sales, or agritourism events and activities.
- Revenue Goals – This doesn’t have to be exact, but you should list out how much revenue and net profit you’d like to obtain from your above revenue streams. I set this at an annual amount and then break down to a monthly amount. By knowing my revenue goals, I can better establish my priorities for purchases and operational activity.
- Marketing Activities – My background is marketing and it is has become a large part of who I am. I would never have considered starting an alpaca farm if I didn’t have an idea of marketing options for attracting sales and revenue. Most farms don’t have this luxury, so let me give you a few options to consider for marketing your alpaca farm. These include word of mouth referrals, 4-H clubs, local events, craft shows, agritourism, Google My Business, Facebook business pages and groups, a website (I suggest WordPress), and an Etsy store.
- Major Expenses – I’ve discussed costs and budgets above and on previous blog posts. With alpaca farming, the bulk of your expenses will include the alpaca herd, shelter, fencing, food, and ongoing care for shearing, medications, and an occasional vet visit. If you plan on converting your fiber into yarn, you’ll need to add in the cost for a fiber mill or plan on cleaning and spinning the fiber yourself. I’m not a crafty person, so we go the mill route.
- Milestones – I don’t think any business plan can be complete without setting some milestones. These milestones are major events that must take place to execute your plan. This could include financing, barn build and fencing, alpaca herd acquisition, website build, creating a Facebook page, making your first sale, or farm expansion. Or if you’re anything like us, it equates to the first barn and the second barn, and so on.
Special Note on Agritourism:
If you are not familiar with the term agritourism, you should spend some time researching it. Agritourism is an alternative farm activity where you invite the public to your farm or ranch. It can also be defined as “a set of activities that occur when people link travel with the products, services, and experiences of agriculture.” The product itself can be an “experience.”
According to the U.S. Travel Association, travel and tourism is a $1,036 billion industry in the United States. In 2012, agritourism operations brought in $704 million in sales. Farms with gross farm receipts of $25,000 or more, increased from 3,637 farms in 2007 to 4,518 in 2012. Americans love agritourism and this will only continue to grow in popularity.
You can learn more about agritourism at the Ag Marketing Resource Center.
Great Alpaca Books to Help in Your Research
Before we did anything, I bought a few books online to help me better understand the basics of alpaca farming. This was very helpful, and I suggest you do the same.
Below is a list of alpaca books I would recommend for new farms:
- The Frugal Alpaca Farmer by Ingrid Wood – This is one of the first books I bought and I’m thankful I did. Ingrid gives no-nonsense information on raising alpacas. I would recommend you buy this book first and read through it before visiting farms or shows.
- The Art & Science of Alpaca Judging – If you plan on purchasing show quality alpacas, this book is must-read. It will teach you about conformation, fleece quality, and genetics. It will help prepare you to review high-quality alpacas for purchase.
- The Complete Alpaca Book by Eric Hoffman – I dragged this massive book with me on a business trip and when I turned away for a moment my friend Elena was reading it. Elena is not an alpaca owner, but the book drew her in just as it sucked me in. The book does a great job of walking you through the history of alpacas, alpaca management, fiber, genetics, and training.
- Alpaca Field Manual by C. Norman Evans – This book is a must-have book for alpaca owners. It covers key elements of ongoing care, breeding, birthing, immunizations, and parasites.
- The Camelid Companion by Maarty McGee Bennett – This book will teach you about alpaca behavior, herd dynamics, and alpaca training. It’s a great read for newer alpaca owners.
Time to Start Your Alpaca Adventure
I hope my article has you thinking about starting an alpaca farm and doing so with eyes wide open. Alpaca farming is an amazing adventure and it can be profitable if done correctly.
If you have questions or comments, I’d love to hear them below. I try and reply to all comments within 24 hours, so just drop in a note if you have questions.
If you are in the midwest and would like a farm visit, my husband and I would love to host you. Jason will be happy to chat about farm setup and operations and I’ll be happy to discuss all things sales and marketing.