Communication, Good Records Key to Averting Greenhouse Cash Crunch | Agriculture Business & Agritourism News

EAST EARL, Pa. — Staying on top of finances and heading off cash crunches are crucial for maintaining a successful business, including a greenhouse operation.

But even in situations where cash is tight, smart managers can employ some practices that will help sustain the business — and good communication is an important tool for carrying them out.

Jodi Gauker discussed these topics with about 150 people gathered Jan. 22 at Shady Maple for Penn State Extension’s Greenhouse Growers Day.

“Businesses that don’t manage cash flow go out of business,” said the Penn State Extension business development educator based in Chester County.

Poor cash flow accounts for more than 4 of 5 business failures, she said.

Gauker discussed ways of preserving and raising capital that can help a business weather a cash crunch, which she defined as “being unable to meet current obligations with cash on hand.”

She started with some “low-hanging fruit” strategies such as designating “no- or low-spend” periods during which no extras are purchased or large investments made.

Other options in that category, such as requesting discounts and negotiating payments, require good rapport and communication with vendors.

She recommended keeping a close eye on price elasticity, which shows how responsive customer demand is to a product based on its price.

Price elasticity can easily be determined by tracking prices and inventory, and the data can be used to make predictions on how to capture the highest value for a given product.

Gauker urged growers to keep an emergency fund in the event of a cash crunch, recommending it be at least three months’ worth of expenses or 10% of annual revenue.

Smaller amounts could still reduce the need to tap into personal savings to get through hard times — something that more than half of small business owners reported doing in a 2022 survey.

“If you don’t have an emergency fund, please start that today,” Gauker said.

For raising capital, Gauker emphasized the importance of communicating financial needs and choosing a lender that is familiar with agriculture.

“The best time to find a lender is when you don’t need one,” she said.

While character is at the top of the list for gaining a lender’s trust, having an updated business plan, three to five years’ worth of cash flow projections, and tax returns from the past three years will go a long way toward securing a loan.

Lenders also want to know how the business stands out in the marketplace, Gauker said, adding that the importance of good communication can’t be underestimated.

“You can often avoid a cash crunch just by communicating,” she said.

If growers fall short in some areas of marketing or inventory, she suggested looking for partner opportunities that can help fill the gaps.

Gauker recommended updating cash flow statements and balance sheets at least quarterly — ideally monthly for cash flow.

“If you do not have a business plan, my homework assignment is to go write one,” she said.