Horniman Horticulture

HORNIMAN HORTICULTURE

Horniman Horticulture has experienced steady growth over the past three years but has run into issues with cash management. Negative cash flows have had a detrimental impact on the overall valuation of Horniman. As the consultants for Horniman, AA Auditors have performed careful and in-depth analysis on the company’s problems and we have determined a recommended course of action for Horniman to improve its cash flow problem and therefore the overall value of Horniman Horticulture to 1.3 million dollars.

Horniman Horticulture specializes in various woody shrubs as well as a variety of annuals, perennials, and trees. Bob and Maggie took over ownership and operations at the end of 2002, and in 2004. At that time, Bob made a strategic decision to shift Hornimans product mix to mature plants because customers were willing to pay premium prices for plants that delivered an instant landscape. The change appeared to work, as profit margin increased from 3.1% to 5.8% and revenues had increased by 15%. When compared to the industry benchmark, Horniman also appeared strong as they outperformed the industry in every category except for receivable, inventory, and payable days. The payable days being lower than the industry benchmark is due to Maggie paying suppliers early enough to obtain any trade discounts. Maggie also has an aversion to debt financing due to the risky nature of the horticulture business. Despite how strong the company appears to be doing, Maggie has concerns about the recent declines in the company’s cash balance. We performed an analysis of Horniman Horticulture’s current financial health and identified the problems that we believe are causing the cash flow problems.

As stated previously, the major problem with Horniman Horticulture is cash management. Horniman has consistently had negative cash flows, meaning that each year, more cash is leaving the business than is coming in. The chart shows how cash flows are...