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 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...

November 26, 2015

2015 Metrolina Greenhouses (Huntersville, NC) Field Trials Results

See the 2015 field trials results for Metrolina Greenhouses in Huntersville, NC.

Read More
Yoshimi And Grace Shibata

November 26, 2015

American Floral Endowment Establishes Fund To Honor Legacy Of Yoshimi Shibata

Yoshimi “Shimi” Shibata, a flower grower and wholesale florist, passed away in October at the age of 100.

Read More
Vinca 'Valiant Lilac' (2015 Texas A&M University Field Trials)

November 25, 2015

2015 Texas A&M University (Overton, Texas) Field Trials Results

See the 2015 field trials results (includes photo gallery) for Texas A&M AgriLife Research and Extension Center in Overton, Texas.

Read More
Latest Stories

November 25, 2015

Everything You Need To Know About the New England GROWS…

Held In Boston December 2-4, New England GROWS includes a comprehensive conference program, a trade show, and with six special programs that teach new skills and provide opportunities to network with colleagues.

Read More

November 20, 2015

Lessons Learned From The California Drought

For those of us who live in the areas of the country that experienced harsh winters and significant rain over the past three seasons, water has become a nuisance in some cases, rather than a blessing. I can’t count the number of times I have wished to be able to send the snow or the rain to the West Coast, tied up with a big red bow. But think about how we’d feel if we didn’t have the snow and the rain, and we were experiencing the same dry conditions that the residents of California, Oregon and Washington have. With fresh water supplies dwindling in regions of the world, and the resistance of residents in states like Michigan to share water from the Great Lakes, it’s likely that the next civil or world war could be fought over our most precious resource. California’s epic drought should cause everyone to look […]

Read More
Jill Calabro

November 3, 2015

AmericanHort Names New Research And Science Programs Di…

Jill Calabro will bring strategic direction and oversight to research funding by the Horticultural Research Institute, the research affiliate of AmericanHort.

Read More
SBI’s ANY Device Application allows growers to quickly determine availability-featuer

November 2, 2015

SBI Software’s Solutions Help Simplify Logistics For G…

The company focuses on helping growers improve their existing processes with solutions for site fulfillment, replenishment, inventory management and more.

Read More
Griffin Expo15 seminar

October 28, 2015

Griffin’s Hits Record Attendance With 2015 Expos,…

Griffin Greenhouse Supplies set new attendance records with its 2015 Expos. Its 2016 Expos are set for August 31 and September 1, 2016, in West Springfield, Mass., and September 21-22, 2016, in Lancaster, Penn.

Read More

October 28, 2015

Possum Run Greenhouses Taken Over By New Owners

Justin and Lynn Marotta have placed Possum Run Greenhouse and Gifts into the hands of new owners. John and Caroline Bletner, a newly married couple, took over the Bellville, Ohio, property October 2, according to an October 24 article in the Mansfield News Journal. The Marotta family has run Possum Run Greenhouse and Gifts for 41 years. When the Marottas announced in April the greenhouse operation was for sale, they said they were looking for an energetic couple to take the business to the next level, which is what they found in the Bletners, the article reports. The Bletners have hinted they’ll be “opening to a larger market” and that the retail side will “look different.” They’ll hold a grand re-opening the week of April 22, 2016. Staff are staying on board and the Bletners are maintaining many of the suppliers. The 200-plus varieties of fuchsias Justin brought to the greenhouse […]

Read More

October 25, 2015

We Could Be Growing More Green Infrastructure Plants Th…

At her Cultivate’15 presentation in July, Shannon Currey of Hoffman Nursery challenged the horticulture industry to get involved while green infrastructure is still developing, saying that a good start is to offer more plants that fit the unique needs of this market.

Read More
Integration Key To Compliance For Specialized Crops

October 22, 2015

Integration Key To Regulation Compliance For Specializ…

Growers considering supplementing ornamental crops with cannabis will enter into a new world of governmental regulations where key business systems will be indispensable for successful crop management.

Read More
Kate Santos Operations Director Dummen Orange

October 21, 2015

Kate Santos Explains What The Sale Of Dümmen Orange To …

Over the weekend, Dümmen Orange announced that the Dümmen family has sold its majority stake in the Dutch flower breeding company Dümmen Orange to European private equity firm BC Partners. The deal is valued at more than $560 million, around 11 times its core earnings, according to a Reuters press release. The company, owned by the Dümmen family and investment firm H2 Equity partners, has locations all over the world, including farms in Central America and East Africa. This is BC Partners’ first foray into the flower business. We caught up with Kate Santos, operations director for Dümmen Orange, to find out how the company’s sale to BC Partners affects Dümmen Orange customers, if at all. Here’s what she told us: Why did the Dümmen family decide to sell their shares? Why to a private equity investment company? Similar to the reason that H2 sold its shares to BC Partners, all […]

Read More
The tradeshow at the Cannabis Business Summit & Expo — outside of the occasional 1960s vibe, perhaps — would feel familiar to most growers

October 19, 2015

Have Cannabis Growing Expertise, Seek ‘Golden Ticket’

Many horticultural growers might start cultivating cannabis tomorrow if they could secure a license, the equivalent of a “golden ticket.” But these are hard to come by, and the number and criteria vary greatly by state

Read More
Lurie Garden Millennium Park

October 16, 2015

Green Infrastructure An Opportunity To Redefine How We …

Green infrastructure is an emerging market that has important ramifications for the horticulture industry. That is, if growers, designers and other industry players take a proactive approach to grasp the opportunities that come their way.

Read More

October 5, 2015

Smart Business Sense At Tidal Creek Growers Yields Succ…

Tidal Creek Growers stays competitive by focusing on what really turns a profit. It helps the large operation successfully balance contract growing with growing for retail garden centers.

Read More

October 4, 2015

ePlantSource Adds 5 New Partner Companies

ePlantSource has announced an additional five companies that have been added to its partner distribution list. Not only do the additional partners offer more supplier options to ePlantSource customers, but the website now also provides a more diverse product list with the addition of bulbs, clematis and many new varieties. New partners added for the 2015 – 2016 season: A.D.R. Bulbs Lennon Farm Greenhouses Micandy Gardens Pacific Growers Roseville Farms “We make it a priority to respond to our customers, and we have had many requests for additional options and a more diverse product line, so we are continually evaluating suppliers that work well with our non-traditional approach to the sale of live goods,” says Gary Falkenstein, President and CEO of ePlantSource. “We feel that it is good for our company, our customers and the industry as a whole to keep looking forward and seeing how we can improve and expand how […]

Read More
Cannabis marijuana

September 8, 2015

Supplemental Lighting Benefits For Growing Cannabis In …

The cannabis industry has moved out of the basement and into the light, and with this shift in politics and regulation occurring worldwide there is a need for growers to change the way they think about lighting and energy consumption.

Read More

September 2, 2015

Delegation Is Key To A Successful Greenhouse Operation

In a packed room at Cultivate’15, speaker Bernie Erven presented key steps growers need to take to improve their delegation skills, the benefits of delegating and the dangers of not learning how to delegate. This is a skill, he says, that everyone needs to learn. “For all of you who are part of a family business, you are choosing not to do things the easy way,” Erven laughed, as he presented a list of ways to know whether or not you’re an effective delegator. The owner of Erven HR Services, LLC, Erven has been working with and observing family businesses for many years. In his presentation, he said, he didn’t share anything that he hasn’t seen first-hand. You might not be a good delegator if you: Tend to be a perfectionist Work more hours than anyone else Lack time to explain clearly and concisely Are often interrupted Enjoy what you used to […]

Read More
AmericanHort logo

August 20, 2015

David Savoia To Serve As AmericanHort’s Interim P…

Following Michael Geary’s announcement that he has resigned as president and CEO of AmericanHort, the association has announced that CFO and Senior Vice President for Operations David Savoia will serve as interim president and CEO while the board conducts a search for a new staff executive. Craig Regelbrugge, the senior vice president for advocacy and research, will support Savoia with the association’s external affairs. Geary announced August 12  that he will be leaving his position after September 30 to serve as CEO of the Society for Marketing Professional Services, an organization dedicated to creating business opportunities in the architecture, engineering and construction industries. “As some of you know, I grew up connected to the horticulture industry so this was not an easy decision for me,” Geary said in an eMail. “I have loved working with our organizations and our talented members, staff and partners. However, my choice to return full time to Washington, D.C. will allow me […]

Read More

August 18, 2015

Michael Geary Is Leaving AmericanHort

AmericanHort president and CEO Michael Geary announced last Wednesday that he will be leaving his position at the end of September to serve as CEO of the Society for Marketing Professional Services. “I am writing to share with you that on October 8 I will begin a new professional chapter as CEO of the Society for Marketing Professional Services, an organization dedicated to creating business opportunities in the architecture, engineering and construction industries,” Geary said in an email. His last day with AmericanHort will be Sept. 30, 2015. “As some of you know, I grew up connected to the horticulture industry so this was not an easy decision for me,” he said. “I have loved working with our organizations and our talented members, staff and partners. However, my choice to return full time to Washington, D.C. will allow me to be closer to my family and aging parents and to re-engage with another industry […]

Read More

August 15, 2015

Ball Horticultural Co. Buys Conard-Pyle/Star Roses And …

Ball Horticultural Co. plans to add Conard-Pyle/Star Roses and Plants to its family of breeding and distribution companies, according to a press release dated August 14, which announced the company’s recent acquisition of the famous introducer of Knock Out Roses and other perennials and woody plants to the market. Ball plans to capitalize on the expertise of its Ball Ornamentals woody ornamentals division, as well as Conard-Pyle’s market-leading position as a top rose breeder to strengthen its product line. The sale is scheduled to close by the end of September 2015. Conard-Pyle’s in-house breeding division NovaFlora, along with its intellectual properties and the distribution, production and administration facilities of its wholesale division are also part of the acquisition. NovaFlora is the driving force behind the Star Roses and Plants brand. “Conard-Pyle has been the leader in roses in its market and has been actively diversifying its offering with other woody […]

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