Modern commercial beekeeping cannot get along without sound financial analysis. It often seems that this is the last thing on a operator’s mind. That’s understandable, the allure of producing a product by means of managing a complex insect society is far more exciting than the mundane activity of manipulating numbers on paper. More than a few times the following comment is uttered at workshops, “I’m afraid to calculate how much it cost me to be in the beekeeping business. If I knew, I might have to think about doing something else, and I don’t want to stop keeping bees.” Perhaps, but it becomes more and more evident each day that it is only by means of a sharper and sharper pencil that the beekeeper will be able to continue to enjoy a profitable association with the honey bee.
The question that many financial managers are asking these days, “What business am I really in?” appears to strike many beekeepers as something of an absurdity. But it is perhaps more relevant today than ever before. With the variables present in honey market, can beekeepers ignore the fact that they must first and foremost be honey marketers and promoters, not simply producers? A classic example of this kind of “tunnel vision” can be found in a best-selling book sometime back, which analyzed the current conditions of the railroads. As super highways were constructed and more and more transportation was being done by truck and aircraft, the railroaders failed to ask themselves what business they were in. So, instead of stepping back and diversifying their real business, transportation, they continued to roll down their steel tracks, railroading themselves into some difficult times and leading a few into bankruptcy.
Some who had experience in other branches of agriculture, consider discussions about the troubles of beekeeping industry more than just intriguing. They’d heard much of it before in poultry, hog and other livestock producer meetings. It is a too familiar song, rooted in the fact that no longer is agriculture a favored son in an increasingly urban oriented society.
The profit margin in agriculture is steadily declining. The line between a gain and a loss becomes ever sharper and less and less room for error exists. This is especially true for those actively borrowing funds or contemplating going to the bank. Truly the agriculturalist, as one pundit put it, must, “Squeeze the eagle on a dollar bill until it grins.” This is only possible through financial management.
A first step in managing finances is to develop a monthly cash flow statement. This is nothing more than a listing of sources of cash income and outgo. If there’s more income than outgo, cash flow is said to be positive, a profit it made. If there’s more outgo than income cash flow is negative, a loss is realized. This is routinely done by most folks at the end of the year, but is recommended on a monthly basis to financially fine tune an operation. Some larger concerns may even do this on a weekly or daily basis. Remember, this tracks the flow of cash and only cash transactions should be recorded. Even if a business has a great many assets, they often cannot easily be converted into cash, the necessary fuel needed to run a business on a day to day basis. If cash is short, it can be borrowed short-term to aid during times when income is short.
Agriculture is a prime example of an operation requiring cash flow analysis because it is seasonal in nature. Setting the cash flow statement down on paper is of utmost importance; it cannot be effectively done otherwise. Optimistic feelings about the business or intuition that things are going well can be extremely deceptive.
There are several major ways to juggle finances, including: reducing costs, increasing income and restructuring debt. The following are common sense ideas beekeepers might take advantage of in each of the following categories:
SHOP AROUND–but don’t spend ten dollars to save a penny
BUY AT DISCOUNTS–plan so you can buy in bulk
JOIN GROUP PURCHASING PLANS–pool orders to obtain bigger discounts
INCREASE LABOR OUTPUT:
USE IN SERVICE TRAINING–pay a living wage
ORGANIZE WORK EFFECTIVELY–plan ahead using time management principles
DON’T HIRE MORE LABOR THAN NECESSARY–delegate more authority
KEEP ENGINES TUNED–use less fuel
INSULATE–stabilize heating and cooling
INVESTIGATE SOLAR ENERGY–heat and cool naturally
BUDGET LIVING COSTS–write it down and stick to it
DELAY NEW INVESTMENTS:
OVERHAUL EQUIPMENT–rebuild, don’t replace
DO ROUTINE PREVENTATIVE MAINTENANCE–make it last
LOOK FOR VALUES IN USED EQUIPMENT–find gold in another’s garbage
EXPLORE LEASING OR RENTING–retain tax benefits
OPTIMIZE YIELD–intensify management to increase profit per unit
EVALUATE YOUR MARKETING STRATEGY:
LOOK FOR NEW MARKETS–realize that most profit is made “beyond the farm gate”
ANALYZE STORAGE COSTS–seek out hidden costs
CULL OUT WEAK COLONIES–take losses early
INVESTIGATE LOCATIONS CLOSER TO HOME–reduce yard size
ELIMINATE INVENTORY NOT BEING USED–sell it for cash
LONG-RANGE MARKETING STRATEGY:
DEVELOP RAPPORT WITH CUSTOMERS–cultivate repeat business
EXPLORE A MARKETING/BUYING COOPERATIVE–use resourcse more efficiently
EXPLORE LONG-TERM DEBT SITUATION–increase cash flow
BALANCE LONG, INTERMEDIATE AND SHORT TERM DEBT–even out credit
SHOP FOR INTEREST RATES–take advantage of changing rules
CONCENTRATE CREDIT FROM FEW SOURCES–increase control
Where can you get help in managing your finances. It is readily available from several sources. Explore the Small Business Administration’s programs near you. It sponsors a group of retired executives (SCORE) who volunteer their time to help small businesses. Lending associations and banks are prime sources of aid. The Production Credit Association (PCA) nearest you might be willing to help. Small Business Development Centers (SBDC) provide free counseling, seminars and computer time for the asking. And don’t forget the Chamber of Commerce and/or Cooperative Extension Office in your county or city.
Contributor David McFawn has produced a spreadsheet specifically for beekeepers that seeks to help them make financial decisions. This effort has been ongoing over a number of years. The latest rendition has a queen-rearing and nucleus (NUC) production module that was added in November 2016.
A corollary to financial analysis is developing a credible credit rating. History shows lenders are extremely hesitant to loan capital, when their collateral is only a white box full of honey bees. The bottom line is that credit is far more difficult to obtain for beekeeping than other kinds of agricultural operations. That means the beekeeper had better have his or her “act together,” when approaching a lending institution.
Increasingly lenders (private bankers, Federal Land Bank, Production Credit Associations) are putting on “M’s.” These are not M1 and M2, the money supply figures watched carefully by the Federal Reserve, but the M’s of management and marketing. Borrowing can no longer be taken for granted
The key is to minimize an operation’s margin for adversity by, adopting and sticking with accurate and complete business records. The better the records, the easier it becomes to keep abreast of strength and weakness in an operation. This will also make many agriculturalists (and beekeepers are no exceptions) realize that production skills are taking a back seat to management and marketing in deciding who gets financing.
When it comes to deciding where to obtain agricultural credit, the answer increasingly is the Production Credit Associations (PCAs). The role of these associations in farm financing continues to increase with a decline in commercial bank contributions to non-real estate agriculture
. To find the address or telephone number of the PCA nearest you, contact your county Cooperative Extension Office.