A BEEKEEPING FINANCIAL ANALYSIS

Let’s Develop Some Metrics We Can Use

By: David MacFawn

Financial metrics are key numbers that you can focus on in financial statements.

There are three financial statements, the balance sheet, the income statement and the cash flow that we like to look at to find important metrics. Currently, the Honey Bee industry lacks a set of standard financial analysis metrics. Many beekeeping operations, less than 300 to 500 colonies only report financial information on their personal income taxes. Start-ups in operation less than three to five years, are growing so fast their financial metrics are highly variable. Bee operations less than 50 colonies, have highly variable financial metrics. Equipment like woodenware, trucks, and honey/pollen processing equipment should be depreciated over time, with most operations operating on a cash basis. Depreciating assets will help ensure proper product pricing when done. In a bee operation, “cash is king” meaning an operation can get into a bind without managing their cash flows.

Using a double entry accounting system; with ledgers, where all transactions are entered; Balance sheets, that lists assets, liabilities, and owner’s equity; and Income statements, that list income and expenses while seldom used could be of great benefit. Financial ratio analysis would be of great benefit to a growing new operation as well as an established operation. A ratio analysis is where a ratio’s numerator (top number) is divided by the dominator (bottom number) to compare the top number with respect to the bottom number (see the analysis below for further information). Comparing these financial statements as they change over time can yield a great deal of information via percentage and dollar changes, and component changes. These accounting techniques have been perfected over thousands of years.

A lot of beekeepers want to keep financial information “close to their vest.” Also, there is an additional cost to have a book keeper/accountant keep double entry financial statements. The information should be mostly available from the tax submittal. This especially impacts the small producer. Analyzing cash flows and costs are critical to stay in business. It is the beekeepers who track their costs and cash flows that are more likely to stay in business. The additional information would predict a lot of issues for the beekeeping operation and help keep them from failing.

Ratios like Return on Assets before interest expense which equals, Sales/Assets x Net Income/Sales = Net Income/Assets = Return on Assets give a feel of how the operation is doing. Leverage, or the amount of financing or loans the company incurs, especially in the growth phase is critical to track. Number of times interest earned is used by creditors to ensure the company has sufficient income to cover its interest requirements. The debt ratio is calculated by total liabilities divided by total assets. For a new bee start-up operation, the current ratio, where the current liabilities that are less than one year old are divided by current assets less than one year old, is critical. Often, a new bee company fuels growth out of retained earnings, which means it may have very little debt. However, the company can grow faster with loans.¹

Total liabilities divided by total assets or the debt/asset ratio shows the proportion of a company’s assets which are financed through debt. If the ratio is less than 0.5, most of the company’s assets are financed through equity. If the ratio is greater than 0.5, most of the company’s assets are financed through debt. Companies with high debt/asset ratios are said to be highly leveraged. The higher the ratio, the greater risk will be associated with the firm’s operation. In addition, high debt to assets ratio may indicate low borrowing capacity of a firm, which in turn will lower the firm’s financial flexibility. Like all financial ratios, a company’s debt ratio should be compared with their industry average or other competing firms.

I have used my Financial Analysis Spreadsheets to develop initial ratios for a startup less than three-years-old, and for a more mature operation in the three to five-year-old range. Depreciation of long term assets was set at five years. It should be noted metrics are impacted by what the beekeeper pays for the assets, their product selling price, and the interest rate if a loan is used.

The 50 to 150 colony range is tricky for financial and management growth. This is when the bee company is purchasing a truck, extracting equipment and a honey processing house. Minimizing these costs are critical. The data below represent just one possible scenario and is listed here to serve as examples of conclusions that can be made following the collection of data as the beekeeper grows his or her operation. Over time, depending on the beekeeper’s business and beekeeping goals, collected data will serve to guide the beekeeper’s financial decisions as pertains to his or her individual situation.

Startup: less than 25 colonies

Assumptions:
Honey production
No pollination
Have another job that can be used to funnel cash into the bee operation
Fuel growth out of retained earnings
Very little debt
Catch two nectar flows of 40 pounds yield each. This may be tough to do. However, one flow of 40 pounds is marginal.
Use personal pick up and charge mileage rather than purchasing pickup for bee operation.
Purchase all budget grade new woodenware equipment. Equipment expensed.
Charge $10/pint and $17/Quart for honey sales.
Sell 80% pints
Sell 20% quarts
Use another beekeeper’s honey processing equipment to extract honey.
Interest rate: 7%
Labor rate: $12/hour
Requeen every year
Hive mortality 40%

25 Colonies

Return on Assets = Net Income/Assets = $528/$2,354 = 22% This means $528 is 22% of $2,354 for a Return on Assets yielding 22%.
debt ratio = total liabilities/total assets = $0/$2,354 = 0%. We have no debt ($0) on total assets ($2,354). This means growth was achieved by the owner investing some of their own money, or owner’s equity from the on-going business.
will have to pump some money in initially.

Startup: 50 colonies

Assumptions:
Honey production
No pollination
Catch two nectar flows of 40 pounds yield each. This may be tough to do. However, one flow of 40 pounds is marginal.
Have another job that can be used to funnel cash into the bee operation
Fuel growth out of retained earnings
Very little debt
Use personal pick up and charge mileage rather than purchasing pickup for bee operation.
Purchase all budget grade new woodenware equipment. Equipment depreciated but paid for with cash.
Charge $10/pint and $17/Quart for honey sales.
Sell 80% pints
Sell 20% quarts
Interest rate: 7%
Labor rate: $12/hour
Requeen every year
Hive mortality 40%
Return on Assets = Net Income/Assets = $1208/$4370 = 28%
debt ratio = total liabilities/total assets = $0/$4,370 = 0%
will have to pump some money in initially.

More mature company four to five years old; 100 colonies

Assumptions:
Honey production
No pollination
Catch two nectar flows of 40 pounds yield each. This may be tough to do. However, one flow of 40 pounds is marginal.
Fuel growth from retained earnings and loans.
Have some debt
Purchase a used pick up for $15,000 paid for with loan.
Purchase Honey Processing Equipment $8,000.
Honey House: $25,000
Purchase all budget grade new woodenware equipment. Equipment depreciated but paid for with cash.
Charge $10/pint and $17/Quart for honey sales.
Sell 80% pints
Sell 20% quarts
Interest rate: 7%
Labor rate: $12/hour
Requeen every year
Hive mortality 40%
Return on Assets = Net Income/Assets = $3,525/$56,603 = 06%
debt ratio = total liabilities/total assets = $ 48,000/$56,603 = 85%. This means total liabilities ($48,000) is 85% of assets ($56,603). This high of a percentage would be concerning to a banker.
will have to pump some money in initially.

More mature company four to five years old; 145 colonies

Assumptions:
Honey production
No pollination
Catch two nectar flows of 40 pounds yield each. This may be tough to do. However, one flow of 40 pounds is marginal.
Have some debt
Fuel growth from retained earnings and loans.
Purchase a used pick up for $15,000 paid for with loan.
Purchase Honey Processing Equipment $8,000.
Honey House: $25,000
Purchase all budget grade new woodenware equipment. Equipment depreciated but paid for with cash.
Charge $10/pint and $17/Quart for honey sales.
Sell 80% pints
Sell 20% quarts
Interest rate: 7%
Labor rate: $12/hour
Requeen every year
Hive mortality 40%

145 colonies

Return on Assets = Net Income/Assets = $2,412/$42,444= 06%. A 6% Return on Assets means money is being invested in assets ($42,444) rather than pulled out of the company in the form of Net Income ($2,412).
debt ratio = total liabilities/total assets = $31,718/$42,444 = 75%
will have to pump some money in initially.

157 colonies

Return on Assets = Net Income/Assets = $5,604/$34,290 = 16%. Note Return on Assets has increased from 6% to 16% since new colonies are coming on line and producing, with Assets being depreciated (equipment’s useful life being used).
debt ratio = total liabilities/total assets = $23,577/$34,290 = 69%
will have to pump some money in initially.

Take Away:

Purchase well maintained used honey processing equipment
Keep honey house costs to a minimum
Purchase “budget” or “commercial” grade woodenware
Consider purchasing “used” or existing hives / colonies
Minimize mileage
May have to pump in some money initially for growth
What money are you going to live on?
Manage your colony mortality rate closely.
Consider taking your colonies to California for February Almonds.
Developing beekeeping industry metrics will take a collective effort across the bee industry. However, the bee industry will benefit immensely from being able to tell when their operation is on track for success. I use Quicken to collect my monthly and yearly expenses and revenue. I can send the Quicken file to my accountant. I encourage you to track your expenses and sales.