1. Greenhouse Business Management
Ben Beale
Extension Educator-MCE
St. Mary’s County
Some slides adapted from Wei-Fe Uva; Cornell Extension

2. Objectives Trends in Maryland Greenhouse Businesses
Marketing Strategies for Greenhouse Businesses
Financials-Enterprise Budgeting

3. Why do we care?
Rising population base of affluent suburbanites in reach of Maryland growers
Source: Census 2000 analyzed by the Social Science Data Analysis Network (SSDAN).

4. 1953-Agricultural land

5. 1982

6. 1992

7. Why do we care?
Rising population base of affluent suburbanites in reach of Maryland growers
Growing interest in gardening, landscaping, and plants.

8. Why do we care?
Rising population base of affluent suburbanites in reach of Maryland growers
Growing interest in gardening, landscaping, and plants.
Horticulture industry is the fastest growing sector in American Agriculture.

10. Production trends of floriculture crops
1,000
2,000
3,000
4,000
5,000
6,000
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Million $
bedding and garden plants
potted flowering plants
foliage plants
cut flowers
propagative material and cut greens

11. Floriculture crops: Average sales per grower
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Dollars
West
South
Midwest
Northeast

12. ERS Data. $ in 1000. Greenhouse and Nursery Crops

13. Now for the Bad News!
The majority of small businesses fail within the first 2 years.
Most folks starting a greenhouse do so because they enjoy growing, not the business side.

16. The Importance of Management

17. SWOT analysis:
The SWOT analysis is simply a tool for organizing your thoughts and determining areas of competitive advantage.
Looks internally at:
Strength
Weaknesses
Looks externally at:
Threats
Opportunities

20. Cornell Greenhouse Business Summary, 2000
- Growing Greenbacks in Your Greenhouse
Wen-fei Uva and Steve Richards
Department of Applied Economics and Management
Cornell University

21. 2000 Greenhouse Businesses Profile
29 New York Greenhouses
12 Eastern NY
11 Central NY
6 Western NY
Marketing Channel:
14 mainly wholesale, 15 mainly retail
Major Crops:
21 produced mainly bedding/garden plants
5 produced mainly potted flowers
1 greenhouse vegetables & herbs
1 propagative material, 1 cut flowers

22. Size of Greenhouses Surveyed
Wen-fei Uva and Steve Richards
Department of Applied Economics and Management
Cornell University

23. Scope of Greenhouse Study:
Wen-fei Uva and Steve Richards
Department of Applied Economics and Management
Cornell University

24. Wholesale Greenhouse 2000 Income Statement
Wen-fei Uva and Steve Richards
Department of Applied Economics and Management
Cornell University

25. Cost of Goods Sold: Wholesale
Labor 44%
Plant Material 23%
Packaging Materials 11%
Heating 6%
All Other COGS 16%
Wen-fei Uva and Steve Richards
Department of Applied Economics and Management
Cornell University

26. Overhead Expenses: Wholesale
Land Rent 18%
Repairs 18%
Depreciation 17%
Insurance 12%
Interest 12%
Other Overhead 23%
Wen-fei Uva and Steve Richards
Department of Applied Economics and Management
Cornell University

27. Retail Greenhouse 2000 Income Statement
Wen-fei Uva and Steve Richards
Department of Applied Economics and Management
Cornell University

28. Cost of Goods Sold: Retail
Labor 37%
Plant Material 27%
Hard Goods 7%
Heating 6%
All Other COGS 23%
Wen-fei Uva
Department of Applied Economics and Management
Cornell University

29. Overhead Expenses: Retail
Depreciation 20%
Insurance 18%
Miscellaneous 15%
Interest 13%
Repairs 11%
Other Overhead 23%
Wen-fei Uva and Steve Richards
Department of Applied Economics and Management
Cornell University

30. Average Balance Sheet

31. Average Cash Flow Statement

32. First Question- What is marketing?
Marketing is:
Organizing the resources of the firm toward understanding customers needs and wants and offering products and/or services that meet those needs. (Russell Winer-Marketing Management)
The purpose of a business is to create and keep a customer. To do that you have to produce and deliver goods and services that people value and want at prices and under conditions that are reasonably attractive relative to those offered by others to a proportion of customers large enough to make those prices and conditions possible. (Theodore Levitt-Marketing Theorist)
Doing something for someone(s) better than another can in order to make a profit. (Ben’s farm guess)

33. Marketing Functions:
Price
Product
Promotion
Distribution

34. Marketing is finding, developing, and profiting from opportunities
Products
Price
Place
Promotion
Target
Market
Your target markets will determine your production and marketing practices, Not vise versa.
Slide From: Wen-fei Uva
Department of Applied Economics and Management
Cornell University

36. Differentiation Broad Narrow / Focused Low Cost/Low Price
Low- Cost leadership
Focus-Niche Strategy based on low cost
Best-Cost provider
Differentiation
Broad differentiation
Focus strategy based on differentiation

37. What Opportunities Exist?
Low-Cost Provider Strategy
Target Market: Chain Super Market and Box Stores
Large Operations with market partnering agreements
Mass market with commodity type pricing
Efficiency based

38. Wholesale Production-Contract Production
Agreement with landscape and retail operations for production of particular or specialized cultivars
Contractors/builders
Smaller individual retail centers
On-site location advantages

39. Service Oriented Opportunities
Production of material plus installation or service agreement
Landscaping-Production of “landscape pillows” for high end market
Pick your own/ Plant a tree service
Rentals items -Parties, special occasions, seasonal items, interior-scaping. Mostly container production.
Interior-scapes

40. Wholesale Production-Specialty Items (differentiated strategy)
Competitive advantage in being able to produce a product of substantial attributes that outside, larger producers can not.
Such attributes include:
Quality
Delivery flexibility
Specialized cultivars branded for specific area
Value added features
Ability to predict future trends and customer desires

41. Finding your niche-Getting things in the right place.

42. Name of the Game: Niche Marketing
Identify markets
Determine special needs
Position yourself to serve those markets
Find out what the larger producers can’t supply: What is too small for them?
Look for ways to differentiate your product, not only from what you grow, but how you grow it, what you do with it, or how you package it, or market it.

43. Some Examples of Current Niche Market Trends
Fresh, in-season local produce
Color, (white eggplants, blue potatoes)
Nostalgia, (traditional American comfort foods, i.e. corn-on-cob, corn bread, vegetable varieties from several years ago)
Organic foods, people believe it is safer
Edible and cut flowers

45. Where are folks selling?
Farmer Owned farmers market
Community farmers markets
Direct sales to local stores
Sales to supermarket chains
Sales to wholesalers and brokers
On-farm sales
Contract growers

46. Developing an Enterprise Budget

47. What is Your Profitability?
- Using Financial Records to Improve Business Performance
Dr. Wen-fei Uva
Senior Extension Associate
Department of Applied Economics and Management
Cornell University
Ithaca, NY

48. What Is Financial Management?
The ability to allocate financial resources in the areas which generate the greatest returns.
Financial Management Decisions You Need to Make:

50. * Pricing Your Product
One of the most critical components of marketing. A common concern!
Critical in achieving sales and profitability
Need to know your COSTS

51. * Making Business Decisions
Are your sales covering your costs?
Which product lines generate the most income?
Should you operate year-round or shut down in the winter?
Contributions to fixed costs
Optimum mix of product lines
Goal setting and increased efficiency

52. * Making Investment Decisions
Input substitution
Capital for labor: installing automated irrigation system or not?
Buying vs. raising your own bedding plants
Enterprise changes
Whether or not to sell a particular product
Adding another operation to your business
What is the best investment for my money

53. Are Your Financially Healthy and Wise?
Do you keep good financial records?
Keep records for more than just taxes!
Use a computer program!
Financial information should be at your fingertips at all times

54. Are Your Financially Healthy and Wise?
Do you construct financial statements?
Income statement, balance sheet, cash flow statement
Banks require these statements
Can often be tedious to complete -- work with your accountant
Do you look at your financial sheets from your accountant?
Do you understand all the lines? - cost of good sold, retained earnings etc.

55. Are Your Financially Healthy and Wise?
Do You Perform Financial Analysis?
Cost analysis - costs to operate the business and profitability
Ratio analysis - Gross Margin Return On Investment, Return on Asset, Inventory Turns
Enterprise analysis - What is your most profitability product line?

56. Are Your Financially Healthy and Wise?
Do you know how your business compare with industry benchmarks
How do you compare to other firms in the industry? - Gross Margin, Inventory Turns, Profit Margin
Set performance goals
Track your performance over time (trend analysis)
Repeat process annually

57. Calculating Production Costs
A Record Keeping System for You
Pricing for Profit

58. Expenses Records
Variable costs: cost items that vary with production volume (Direct and Indirect).
Costs of plant materials, pots, soil, hourly labor, advertising.
Fixed costs: cost items that do not vary with production volume (Overhead costs).
Costs of rent, property taxes, management salary and family living expenses.
Allocate these costs to each product could be tricky (by floor space, time in store, etc.)
25 to 50% of total costs.

59. Expenses Records - cont.
Marketing costs:
Advertising, packaging, shipping, billing, and special promotion, display, etc.
It could also be assigned to variable and fixed costs, but why look at it separately?
Production efficiency vs. marketing efficiency
5 to 15% of total costs

60. Pricing for Profit Price (Revenue) Variable Costs Fixed Costs Profit
Contribution
Variable Costs
Break-even
Fixed Costs
Profit

61. Cost Equation + = (Don’t forget to take into account shrinkage)
Unit Costs ($) =
Fixed Costs ($)
Variable Costs ($) +
Units Produced (lbs, dozens, bag)
(Don’t forget to take into account shrinkage)

62. Analyze Enterprise Profitability
Step 1: Determine How You Want to Allocate the Fixed Costs
By Area & Length of Operation

63. Step 2: Calculate SFW Needed for a Enterprise (ex
Step 2: Calculate SFW Needed for a Enterprise (ex. 5,000 pots of 4” Geraniums)

64. Step 3: Calculate Costs - Direct Variable Costs

65. Step 3: Calculate Costs - Indirect Variable Costs

66. Step 3: Calculate Costs - Fixed Costs

67. Step 4: Calculate Enterprise Profitability

68. Step 5: Breakeven Analysis

69. = PROFIT Profit Equation VOLUME (PRICE-COST)
4,800 pots* ($3.25/unit - $2.78/unit) = $2,256
4,800 pots* ($3.00/unit - $2.78/unit) = $1,056
10,254 pots* ($3.00/unit - $2.78/unit) = $2,256
For $250,000 in sales, a 4% price increase (4 cent increase for every dollar) give you $10,000 more profit.

70. Evaluating Business Profitability
Financial Ratios
Efficiency Measures

71. Financial Ratios Profitability Ratios Return on Assets
Gross Margin: (Revenue - Variable Costs)  Revenue -- (around 50%)
Profit Margin: (Revenue - Total Costs)  Revenue -- (around 10-15%)
Return on Assets
Net Business Income  Average Total Assets
How efficient are you using your resources to produce income.

72. Financial Ratios Inventory Ratio (3.5) Liquidity Solvency
Cost of Good Sold  Average Inventory
How fast are you turnover your inventory
Liquidity
Current Ratio: Current Liability  Current Assets
Your ability to cover current debt (liability)
Solvency
Debt-to Asset Ratio: Total Liability  Total Assets
The percentage of the business’s assets to which creditors have claim.

73. Efficiency Measures Operating Efficiency Cost Efficiency Profitability
Sales per Full Time Worker Equivalent
Net Income pre FT Worker Equivalent
Sales per Square Foot
Cost Efficiency
Labor as percent of sales
Operating expenses as percent of sales
Costs per square foot (or square foot week)
Profitability
Net Income per Owner
Net Income per Owner Hour
Net Income per Square Foot

81. So get ready, hold on and enjoy the ride. The trying is half the fun.

82. And after all the hard work, you get to reap the benefit of your efforts!

83. The End