Give Equal Time To The Number Crunchers

Barry Sturdivant
Barry Sturdivant

Recently, I was privileged to be a part of this magazine’s GROW Summit in Cleveland, Ohio. It was a dynamic group of incredibly creative people with great ideas to increase demand for the industry’s plant material. I hope they are able to go back to their respective operations and implement some of their product ideas and marketing plans. Their input is needed to help ensure that generations succeeding the Baby Boomers become more active gardeners. It’s good to know there is continued high-level thought and effort being expended to figure out how to push increased future sales.

I wasn’t surprised to note a scarcity of CFOs, CEOs, industry CPAs and bankers at the event. Any discussion about the top line of a business should be tempered with attention to the bottom line. These professionals are the people who can and should be instrumental in moving the discussion in that direction. Successful growing operations are those that have a good blend of people with some focused on sales, while others are focused on costs.

Lack Of Adequate Cash Flow Inhibits Future Growth

There have been successful companies that managed to grow themselves out of business. Here’s how it can happen: A grower maintains a plan to increase sales. This plan requires an investment in fixed assets, more equipment, more greenhouse space or a mixture of both. This creates pressure in generating adequate profits and cash flow to service the related term debt. It also requires an investment in inventory to meet the new demand. Banks typically advance about 50 percent on the cost value of inventory. This means the company needs to already have enough available cash to make the investment in the new inventory requirement.

Here’s the potential problem related to growth that requires some forethought. The industry’s profit margins for the past six years have serviced the long term debt, but they’re insufficient to support higher levels in the permanent inventory level to meet higher sales demand. At the same time, few growers have the cash to invest in higher levels of inventory on their own. This creates added pressure on the line of credit, which means the banker has to allow higher advance rates on the line of credit, but usually looks to return to more typical advance rates on the inventory.

Life doesn’t always work out as planned. Your growth year could bring bad weather and other unforeseen setbacks that occasionally affect all farmers. The result is an operating loss or, at least, meager profits below what your business requires. Your cash flow doesn’t cover your higher level of term debt servicing in the first year, that requires higher draws on your line of credit and higher advance rates on your inventory advance rates. Or, you have to ride your accounts payable well beyond the terms agreed to with your suppliers. Either way, some or all of your creditors aren’t happy.

If this pattern of small net profit margins repeats itself for too many years without some intervening years of stronger profits, your banker and trade creditors become less cooperative. You need cash, but with limited credit opportunities, it probably has to come from selling needed fixed assets and shrinking your operation, or finding an investor and giving up some degree of ownership. The irony is you have always been profitable, and the added debt came as the result of a great new opportunity. The problem is entering into this opportunity without an adequate cash cushion to withstand a little adversity.

Bring The Number Crunchers In Early In The Planning Process

An adequate cash cushion (working capital) and sufficient cash flow are easy to define in dollars, not ratios. However, to do it usually involves the participation of a number cruncher. Embrace it — invite them to your meeting and seek their input. They would probably love to get out of their cubicle for awhile.

It’s exciting to see the creative people in this industry devise strategies for marketing beautiful new varieties of plant material. The industry’s future is in good hands. But at the company level, when these meetings are taking place occasionally loop in the CFO, your CPA or even your banker to help ensure the financial requirements of the company, specifically working capital and cash flow, are and will continue to be met.


Leave a Reply

More From Finance/Operations...

April 23, 2018

Griffin Hosting Cannabis Growers Workshop in May

The half-day program in Colorado will focus on several aspects of crop fertility and nutrition delivery strategies.

Read More

April 20, 2018

Your Weekly Chance to Market the Positive Vibes That Flowers Bring

Each week between now and the end of the year, American Floral Endowment will post a new video promoting flowers.

Read More
Dual Income No Kids (DINK) Young Couple

April 10, 2018

Make Plans to Attend the NICH Annual Conference in Atlanta in June

Everyone in every aspect of consumer horticulture is invited to attend and help create a unified, strategic plan around industry-wide priorities.

Read More
Latest Stories

January 31, 2018

Online Education Empowers Employees to Succeed

See how UF/IFAS online certificate courses helped employees at Costa Farms get ahead with their jobs.

Read More

January 25, 2018

Why It’s Critical to Understand Your Real Costs o…

It’s time to stop guessing and start calculating when it comes to finding out what your real cost of production is, and pricing products accordingly.\

Read More

January 23, 2018

Learn How the New Tax Law Will Affect Your Greenhouse B…

AmericanHort will co-host a free “Comprehending the New Tax Law: webinar on Wednesday, Jan. 31, with K-Coe Isom, a national tax consulting leader.

Read More

January 15, 2018

Missouri Greenhouse Grower John Tomasovic Dies

The patriarch of Tomasovic Greenhouses & Nursery, Inc. in Des Peres, MO, was a legend in the plant industry, and widely involved in many associations.

Read More

January 15, 2018

Perennials Icon Louis Stacy Dies

The founder of the former Stacy's Greenhouses in York, SC, passed away on Wednesday, January 10, 2018.

Read More
Charlie Hall Feature Image

January 9, 2018

AmericanHort Launches New Video Series on Profit Margin…

This week, AmericanHort is kicking off a four-part video series that offers perspectives on managing profit margins from AmericanHort’s Chief Economist, Dr. Charlie Hall.

Read More

January 9, 2018

What You Need to Know About the New Tax Bill

The United Fresh Produce Association, which represents the needs and interests of fruit and vegetable growers, recently updated its members on how the recent passage of the Tax Cuts and Jobs Act might affect their businesses. Many of the insights provided by United Fresh also apply to greenhouse growers and nurseries.

Read More
Doug Cole, Owner of D.S. Cole Growers

January 4, 2018

D.S. Cole Growers Blazes Its Own Path to Growth

Known for its commitment to sustainability and innovation, this grower is one of the pioneering trailblazers changing the way horticulture does business.

Read More

December 31, 2017

Ag Exemption for New Trucking Regulation Still Under Re…

The Federal Motor Carrier Safety Administration’s trucking electronic logging device mandate, which took effect on December 18, includes an Hours of Service exemption that may or may not apply to greenhouses and nurseries.

Read More
Tillandsia Air Plants (Plantiflor)

December 15, 2017

Bonsall Nursery Devastated By California Wildfire

Rainforest Flora lost its main greenhouses and outdoor growing property in the Lilac Fire in San Diego.

Read More

December 9, 2017

Southern California Wildfires Narrowly Miss Most Grower…

Here’s an update on horticulture businesses in the areas affected by the California wildfires.

Read More

December 5, 2017

Skagit Horticulture Builds New, Inclusive Business With…

By merging two large-scale producers, Skagit Gardens and Northwest Horticulture, the new company has realized its strengths through focused divisions that emphasize efficiency and success.

Read More

December 4, 2017

Raker-Roberta’s Young Plants Debuts as Roberta’s Finali…

On December 1, Eric Wallien of Roberta’s Inc. in Waldron, IN, officially purchased C. Raker & Sons in Litchfield, MI. The new identity of the company is now Raker-Roberta’s Young Plants, according to a Dec. 1 letter to Raker’s customers, suppliers, and business partners from Vice President Susie Raker-Zimmerman. “There have been minimal changes in management and we will be providing the same products and services on which we have built our reputation in the industry,” Raker-Zimmerman said in the letter, which also announced the name change and new logo. The sale of C. Raker & Sons was announced in September . A series of events affecting Raker’s financial situation caused the need for the operation to find an alternate solution. Roberta’s had been a customer of Raker’s since 2011, and the fourth generation, family owned grower-retailer was a fan of Raker’s commitment to quality. The agreement to purchase C. […]

Read More

October 10, 2017

Sharpen Your Skills in Cost Management and Profitabilit…

The University of Florida is offering a new online course on costing and profitability. The course will take growers through the process of how to accurately evaluate cost of production, labor efficiency, pricing, and equipment investment decisions.

Read More
Willoway Nurseries Team

October 1, 2017

How Willoway Nurseries Gets Its Staff Engaged in The Co…

Willoway Nurseries in Avon, OH, is creating a culture with people who think, act, and feel like owners. Learn how its team is taking the business to the next level.

Read More

September 21, 2017

Horticulture Is All About Connections

The beauty of our industry is that we are more than willing to reach out and help those around us. What connections can you make today to help your business, and what can you offer to help another grower?

Read More
Worker taking cuttings at Vivero Internacional.

September 11, 2017

Vivero Internacional Elevates Clean Cuttings to New Hei…

One of the last independent cutting operations, this fast-growing company raises the standard for delivering clean, high-quality unrooted cuttings.

Read More
Selecta Sponsor bed at Raker trial gardens

September 5, 2017

C. Raker & Sons Acquired By Roberta’s Unique Garden…

Ownership will change hands in December, and Raker will supply young plants for the 2018 season. Beyond that, leadership of the two operations say they are excited to move forward with a partnership that will continue to supply the industry, and gardeners, with top-quality plants.

Read More