Budgeting for growers
Added on 03 October 2022
Planning your budget for next year is a tough task for many growers, but there are a few tricks to keeping on top of your books. When it comes to planning, there are some financial metrics nursery and greenhouse growers need to know.
Scott Mickey, extension associate for agribusiness at the Clemson University Cooperative Extension Service, provides two important formulas growers should use when budgeting for next year.
Neither of these formulas are industry-specific and both apply to nursery and greenhouse growers especially when tracked year after year.
The first financial ratio growers should know:
Working Capital (Current Assets - Current Liabilities) / Operating Expenses (all expenses except Interest & Depreciation)
That formula provides your working capital efficiency, which is a measure of the liquidity of the business.
"The reason I like that one is it gives me an idea going into the year of how much of my expected operating expenses I can cover with the working capital I have at the end of the year," Mickey said.
Ideally, your business should aim for 25% or more. That's a solid goal, Mickey said.
"So if you want to spend $1,000,000 in operating expenses, you need to have working capital of $250,000 at the beginning of the year," he said.
How to calculate it
Your current assets are items that are going to turn to cash within one year.
Normally when you look at your balance sheet, they're going to be listed this way: the items at the top are already cash. Items at the very bottom of your balance sheet aren't expected to turn to cash for a long time.
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Source: Greenhouse Management