Boosting Your Bottom Line: Benchmark Analysis

Boosting Your Bottom Line: Benchmark Analysis

The Great Recession, as Charlie Hall refers to our economy the last two years, led to great structural changes in our industry. Fewer growers are operating businesses today than they were two years ago, and the ones still standing–particularly the ones thriving financially–have one thing in common: They benchmark their performance.

“There are a number of folks who were in business a couple years ago who aren’t here with us today,” says Hall, holder of the Ellison Chair in International Floriculture at Texas A&M University. “There are many reasons for that, but by and large, many of those growers did not go through benchmarking efforts.”

Benchmarking is one way the highest performers in our industry have survived the Great Recession. But in addition to benchmarking, successful growers are analyzing their resources and capabilities to determine competitive advantages while also tearing apart the value chain and reengineering it to reduce costs and enhance value to customers.

But benchmarking, Hall says, leads to faster company growth and greater productivity.

“There’s a PricewaterhouseCoopers barometer survey that indicates companies who benchmark achieve 69 percent faster growth and 45 percent greater productivity than those who don’t,” Hall says.

Warning Signs

There are, however, plenty of factors inhibiting growth and productivity for growers. Hall and colleague Paul Thomas, a professor and Extension specialist at the University of Georgia, posed financial questions to growers at 2009 industry events and came up with some disheartening data:

– Twenty-nine percent of growers are having trouble paying their bills in a timely manner;
–Forty percent are experiencing a shrinking market for product;
–Twenty-five percent are frequently losing customers;
–And 33 percent are experiencing sales growth but no growth in net income.

One of the ways growers could improve upon those numbers, Hall says, is if they reviewed their company’s financial situation more frequently than they currently are.

“About half our audiences said they review their financial situation monthly, but 25 percent are analyzing their financial statements on a less-than-monthly basis,” Hall says. “We challenge folks to do that in a more timely manner, particularly in times of economic distress. It’s imperative to do at least a monthly analysis of your statements–if not more frequent than that. There were a few folks doing it on a daily basis.”

Getting Started

Unless growers have well-thought-out benchmarking systems in place, it’s difficult for them to know where their company needs specific improvement. But benchmarking, Hall says, helps growers identify trouble spots.

“In any financial analysis within a firm, you’re focusing on three major issues: profitability, liquidity and safety,” Hall says. “Basically, every single financial ratio is related to one of those fundamental issues.

“It can be mind-boggling at times when you’re getting all this information. So I’m encouraging folks to take a look at one or two ratios each year, implement those into their benchmarking system, analyze them and then, each year, add another metric or two to their system. That way, it doesn’t become as daunting a task.”

Among the most important tools of a financial analysis is the Strategic Profit Model. The model equation is profit margin times asset turnover, which equals return on investment (ROI) times leverage factor, which equals return on equity (ROE).

How To Value Inventory

Does it matter if you value inventory using a cost-based approach or a market-based approach? Charlie Hall says the industry is moving toward market-based evaluations of value.

“There are advantages and disadvantages, depending on the firm’s tax situation,” Hall says. “But by and large, most bankers want a market-based value of inventory these days. When you go through the Strategic Profit Model and through the Horticulture Business Analysis System, it requires a market-based value of inventory.

“I think most of the folks in the industry are moving in that direction anyway, and anybody who’s got a loan covenant with a bank has already gone through it. It’s on an accrual basis of valuing inventory. So in my mind, you might as well make the transformation from a cost-based inventory evaluation to a market based.”

For privately held firms, Hall says the Strategic Profit Model is the most appropriate measure of profitability one should look at. And it’s a more complete model for those simply relying on ROI figures.

“Most folks, on their return on assets, should target 8 to 10 percent and 15 to 20 percent on return on net worth. If you want to be among the best in the industry–the top performers–you’re looking at 15 to 20 percent on return on assets and 30 to 40 percent on return on net worth.”

If growers aren’t seeing returns like these, they need to ask themselves what they can do differently. Simple tweaks, Hall says, can make a tremendous difference in the profitability in the business.

“It’s not doing a complete overhaul, it’s tweaking the system,” he says.

Grower Resource

To get started on benchmarking, Hall recommends growers check out the Horticulture Business Analysis System at https://hortbusiness.ifas.ufl.edu/analysis. The system has been around for years, but growers can now plug in income statement and balance sheet data and compare their businesses against others.

Leave a Reply

More From Finance/Operations...
Practical Software Grower Vertical

June 18, 2016

Practical Software Solutions Increases Accessibility, Efficiency Of Its Grower Vertical System

Practical Software will demonstrate Grower Vertical, its customizable and scalable enterprise management system for the horticulture industry, at Cultivate’16 in July.

Read More
Battlefield Farms Company shot

June 14, 2016

Battlefield Farms Is A Finalist For 2016 Operation Of The Year

Battlefield Farms in Rapidan, VA, is one of three finalists for Greenhouse Grower’s 2016 Operation Of The Year award and winner of the Excellence In Innovation award for 2016.

Read More

June 7, 2016

Ball Seed Offers Full Mobile Ordering Capabilities With Updated WebTrack To Go App

The latest update for Ball Seed’s WebTrack To Go mobile app now includes full ordering capabilities for the industry’s largest assortment of seeds and plants. App users can also complete order fulfillment via seed count or package size, find product substitutions, get personalized “contact us” information, request plant tags, and more. “Upgrading WebTrack To Go to the full suite of ordering and management tools is where we’ve always wanted to be,” says Mark Morris, Director of IT for Ball Seed. “With this new roll-out, we’re keeping up with our customers on-the-go and providing them the information and access they need –- even while away from their desks.” The Ball Seed WebTrack To Go app lets customers: Check order status and shipment tracking 24-7 Access up-to-the-minute product inventory from hundreds of suppliers Place orders by seed count, packet size, and more Find product info, culture and photos when and where they […]

Read More
Latest Stories
Practical Software Grower Vertical

June 18, 2016

Practical Software Solutions Increases Accessibility, E…

Practical Software will demonstrate Grower Vertical, its customizable and scalable enterprise management system for the horticulture industry, at Cultivate’16 in July.

Read More
Battlefield Farms Company shot

June 14, 2016

Battlefield Farms Is A Finalist For 2016 Operation Of T…

Battlefield Farms in Rapidan, VA, is one of three finalists for Greenhouse Grower’s 2016 Operation Of The Year award and winner of the Excellence In Innovation award for 2016.

Read More

June 7, 2016

Ball Seed Offers Full Mobile Ordering Capabilities With…

The latest update for Ball Seed’s WebTrack To Go mobile app now includes full ordering capabilities for the industry’s largest assortment of seeds and plants. App users can also complete order fulfillment via seed count or package size, find product substitutions, get personalized “contact us” information, request plant tags, and more. “Upgrading WebTrack To Go to the full suite of ordering and management tools is where we’ve always wanted to be,” says Mark Morris, Director of IT for Ball Seed. “With this new roll-out, we’re keeping up with our customers on-the-go and providing them the information and access they need –- even while away from their desks.” The Ball Seed WebTrack To Go app lets customers: Check order status and shipment tracking 24-7 Access up-to-the-minute product inventory from hundreds of suppliers Place orders by seed count, packet size, and more Find product info, culture and photos when and where they […]

Read More
Gotham Greens Atrium Style Greenhouse Chicago

May 23, 2016

What’s Good For The Environment Is Good For Business [O…

Investing in technology to become more sustainable “always goes hand in hand,” says Abe VanWingerden, co-CEO of Metrolina Greenhouses. “If it is good for the environment, it normally is good for business over the long term.” That connection was abundantly clear in the responses we received to this year’s Top 100 Growers Survey. VanWingerden points to three investments Metrolina has made as good examples of how technology can reduce an operation’s carbon footprint and pay dividends financially. Its biomass system burns locally sourced waste wood — a renewable resource; its ozone water treatment system cleans irrigation water, reducing the need for fertilizers and pesticides, and improving plant quality and precision growing; and electrostatic sprayers reduce water and chemical use, and provide more targeted chemical applications. Other Top 100 Growers have found VanWingerden’s theory to be true, as well. Costa Farms’ investment in solar energy panels on three buildings at its […]

Read More
Petunia 'Supertunia Violet Star Charm' (2015 University of Georgia Field Trials)

May 10, 2016

New Southern-Centric Ornamental Production Conference T…

The 2016 Academy of Crop Production is dedicated exclusively to sharing information on advanced ornamental crop production and business management techniques for ornamental producers.

Read More
University of Florida Online Greenhouse Training Courses

April 25, 2016

University of Florida Offering Online Training Courses …

There will be five courses offered, with the first starting on May 30. Courses are available in both English and Spanish and range from beginner level to advanced education.

Read More
Sanitation programs are essential to preventing and removing food safety concerns.

April 7, 2016

USDA Launches GroupGAP Program For Fruit And Vegetable …

The new certification program is designed to help small and mid-size growers, including greenhouse vegetable producers, comply with new food safety regulations.

Read More
Young Plants Farm North Carolina

March 15, 2016

Young’s Plant Farm Obtains MPS-A Qualification

MPS, an organization that develops and manages certification for companies in the horticulture industry, has awarded MPS-A certification to Young’s Plant Farm in North Carolina and Alabama.

Read More
Charlie Hall Feature Image

March 14, 2016

Dr. Charlie Hall Will Offer Keynote Address At Farwest …

The Texas A&M economist will discuss factors affecting short- and long-term demand driving the future of the green industry.

Read More
Seed Your Future Logo

March 8, 2016

Longwood Gardens And American Society For Horticultural…

Under the direction of co-chairs Paul B. Redman of Longwood Gardens and Anna Ball of Ball Horticultural Company, the “Seed Your Future” initiative is designed to combat declining awareness of horticulture while promoting it as a viable career choice.

Read More
Florida Green Industry

March 4, 2016

University Of Florida Study Shows Green Industry Genera…

According to the study, the rise of large retail chain stores with garden departments has made plants and other horticultural products more readily available to consumers than ever before.

Read More
Great Lakes Growers Expansion

February 22, 2016

Great Lakes Growers Expands Its Production Capacity For…

The Burton, OH-based grower has added 25,000 square feet to its operation, helping it to keep up with rising consumer demand.

Read More
National Garden Bureau Logo feature image

February 16, 2016

New Officers And Directors At National Garden Bureau an…

During the ASTA Flower & Vegetable Seed Conference, National Garden Bureau and All-America Selections elected new officers and directors.

Read More
Katherine Wolper

January 24, 2016

Ludvig Svensson Hires Katherine Wolper As West Coast Sa…

Wolper says she looks forward to listening to growers and understanding the concerns, obstacles, and opportunities they face.

Read More

January 20, 2016

Tips For Overcoming Challenges In Family Business From …

Our industry is run by a collection of family businesses, and every one, no matter how big or small, has its share of management issues. But there are several differences between one that is run successfully as a business and one that allows family politics to distract from the organization’s goals. In this year’s State Of The Industry Survey, we noted that labor recruitment and succession are two areas where growers struggle. In talking with the owners of Costa Farms for this month’s cover story, I thought some of the values they have incorporated into the operation’s management structure really stood out as practices that other family businesses could use. The participatory management approach to business and team building is one that Tony Costa, the second-generation owner of Costa Farms, instilled in his children, Maria Costa-Smith and Jose Costa, and son-in-law, Joche Smith, the current owners of Costa Farms. In […]

Read More
I-9 Form

January 13, 2016

Proposed Changes To I-9 Form Important For Greenhouse G…

AmericanHort’s Government Relations and Grassroots Representative Davi Bowen says growers need to become familiar with the new form and should be prepared to make comments if necessary.

Read More

January 13, 2016

Wenke Greenhouses Buys Zylstra Greenhouses

Two Kalamazoo, MI-based greenhouses have merged after Wenke Greenhouses closed on Zylstra Greenhouses at the end of November. The additional property and facilities will allow Wenke Greenhouses to expand its young plant business, among other areas.

Read More

January 13, 2016

Costa Farms Wins With Its Emphasis On Team, Solutions, …

Based in Miami, FL, Costa Farms has gone global by focusing on strategy, systems, and vertical integration. See how the operation continues to expand through its emphasis on team, solutions, and growth.

Read More
[gravityform id="35" title="false" description="false"]