Financial Analysis After Harvest: Assessing Current Status, Improving Cash Flow, and Protecting Future Earnings

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BY NOW, FLORIDA BLUEBERRY GROWERS have finished counting their till and are coming up short — more so for the commercially harvested than u-pick operations. The 2016 blueberry season was one of the most challenging we have seen during the recent expansion of the Florida blueberry industry. The culmination of events stemming from lack of chill hours to the cool spring affects of the El Niño weather pattern kept Florida growers from hitting the coveted market sweet spot that is critical for profitable returns.<!--more-->

The financial strength of grower’s operations will determine the level of stress that will be felt from the production losses that were experienced. Operations having significant unencumbered liquid assets (i.e., cash and marketable securities), additional borrowing capacity, and manageable debt levels were much better positioned to absorb adversity.

In a normal operating year, growers are able to replenish their liquidity — cash used for expenses in producing the crop; however, this year many may come up short. If working capital position is weak, growers must think strategically about how to rebuild it. If it is still strong, it must be protected! The level of cash and other liquid assets to be maintained is a management decision that requires thoughtful consideration. If a grower’s primary source of income is from blueberries or other crops, which are always subject to production and market risks, unencumbered liquid assets should be maintained at a level sufficient to cover a reasonable operating loss, and ideally, one year of total obligations (i.e., debt payments, living expenses, and maintenance capital expenditures).

Below are key management strategies that growers can implement to recover from the most recent blueberry season and assure financial success in the future:


• <strong>Prepare a monthly cash flow projection</strong> that is frequently updated with actual income and expenses, and all other obligations (i.e., debt payments, living expenses, and maintenance capital expenditures) to serve as a road map to keep the plan on track.

• <strong>Carefully study opportunities</strong> to improve cash flow by analyzing costs of production and break-even levels for different scenarios of price, costs, and production.

• <strong>Cash is king.</strong> Financial stress requires vigilance over spending. Consider strategies to reduce costs and carefully examine every capital purchase that will require additional debt. This may be the year to repair rather than replace equipment.

• <strong>Be proactive in communicating with your lender.</strong> As soon as possible, request a meeting to review the current situation. Be prepared with up-to-date production records, income statements, and balance sheets to review. Together, a plan can be formulated to manage through the crisis. Farm decisions can be emotional and complex. Lenders and trusted advisors can offer an outside perspective, as well as propose solutions for continued viability.


• <strong>Borrow against assets.</strong> If cash reserves on-hand have been invested into the business, consider an operating loan for 2017 production costs or a term loan to recoup a portion of your capital expenditures and investment.

• <strong>Sell capital assets.</strong> Generate cash by selling assets that are non-essential, underutilized or not generating a reasonable return on investment.

• <strong>Take this opportunity</strong> to lock in the historically low interest rates.


• <strong>Renegotiate debt terms</strong> to reduce payments and cash flow pressure by increasing the length of amortization on term loans, at least for a season or two, until you regain your financial footing. Restructure carry-over balances on 2016 operating loans into a term loan (three to five years) with an annual principal reduction spread out over the term. In return, the lender may request enhancements such as additional collateral; USDA FSA credit guarantees; or the guarantee of other parties to manage lender’s credit risk.

• <strong>Consider leasing</strong> for those “must-have” equipment, vehicle, and building purchases. A lease will have lower payments and preserve cash flow.

• <strong>Enhance farm income</strong> with alternative or off-farm employment, which can also offer benefits such as health insurance.

• <strong>Reduce family withdrawals.</strong> Family living expenses are difficult to cut back; however, this may be essential in the short term. Consider staycations instead of expensive vacations and postpone capital purchases.


• <strong>Purchase crop insurance.</strong> Although it will not cover last year’s losses, it is a risk-management tool that should be used going forward to put a safety net under cash income. In times of low production and damaging weather, crop insurance enables growers to meet financial obligations — both business and personal. Crop insurance is an essential element for lowering production risk and protecting against catastrophic losses as part of your risk management strategy. Both the MPCI APH (production) and Whole Farm Revenue Protection policies are available in most blueberry producing counties in the state.

• <strong>Be sure to maintain a close relationship</strong> with your lender and other trusted advisors to periodically review the financial results of the operation and plan strategies for future performance.

Farming presents unique risks with returns to reward that risk over time; however, proactive management strategies such as maintaining adequate working capital including cash reserves along with keeping leverage at manageable levels are required to mitigate risk. This will ensure the ability to take advantage of opportunities as they arise and economic viability for long-term success.


article by REGINA W. THOMAS

<em>ABOUT THE AUTHOR: Regina W. Thomas is the chief business development officer for Farm Credit of Central Florida. Should you wish to discuss these strategies further, or have any questions, you may contact her at (800) 533-2773 or at <a href="mailto:[email protected]">[email protected]</a>. On the Web: <a href="" target="_blank"></a>.</em>

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