Horiman Horticulture

Topics: Revenue, Generally Accepted Accounting Principles, Accounts receivable Pages: 6 (2078 words) Published: November 16, 2011
Horniman Horticulture faces increasing cash account difficulties. Cash accounts have continually been decreasing from years 2002 to 2005. Revenue growth for the business has risen by over 12 percent for years 2004 and 2005. The upcoming year of 2006 brings opportunities for expansion and increased revenue growth. The following plan outlines the state of the business and the suggested solutions to correct the cash flow problems.

Background of Firm
Horniman Horticulture, an established wholesale nursery business, was acquired in late 2002 by Bob Brown after purchasing the business from his father –in-law. Horniman Horticulture is located in central Virginia and markets primarily to retail nurseries throughout the mid-Atlantic region. The business specializes in woody shrubs and carries a variety of other plants and trees. Mr. Brown and his wife, Maggie, funded the purchase of the $999,000 nursery through funds they obtained from the sale of their house, a minority-business development grant, and personal loans from family members. Horniman Horticulture employs 12 full-time employees and 15 seasonal workers to aid Mr. Brown in the operation of the 52 greenhouses and 40 acres of fields. Utilizing the land and personnel employed by Horniman Horticulture, Mr. Brown has been able to increase the number of plant species grown at the nursery by more than 40 percent. He realized the increased demand for “instant landscape” type plants and increased Horniman Horticulture’s stock of mature plants and tree species. The “instant landscape” inventory takes two to five years to liquidate and sells for a higher cost compared to other products offered at the greenhouse. Mrs. Brown controls the business’s finances along with two clerks who oversee the business’s financials. With Mrs. Brown in control of Horniman Horticulture’s financials and Mr. Brown’s efforts to increase the business’s product lines, they have experienced increases in both profit margin and revenue over the last several years. Mrs. Brown’s goal for managing the business’s finances was to avoid debt financing. Inventory risk was the leading factor of why she avoided bank lending. It was her fear that inventory could be destroyed by poor weather. This would make payment on loans impossible due to products being destroyed and no new revenue. In order to keep costs low, she would make payments within 10 days to take advantage of trade discounts from suppliers. Mrs. Brown used these strategies, but Horniman Horticulture’s cash flow fell below 8 percent of annual revenue. The low cash balance is a concern for the business due to high cash supplies being the backbone of the Browns’ policy of avoiding debt financing. The Browns plan on increased demand in 2006 due to a maturing product line. They are expecting a 30 percent revenue growth over the previous year. Mr. and Mrs. Brown expect to purchase a neighboring 12 acre farm to further expand business operations in 2006. Statement of Situation

Hortiman Horticulture’s revenue growth has dramtically increased in the past two years. Revenues have increased on average 9 percent each year from 2002 to 2005. During this time, cash balances have decreased. Accounts receivable and inventory have increased in the same time span. Cash has decreased from $120.1 thousand to $9.4 thousand. This is a decline of 92 percent over the four year time span (exhibit). In the same period, accounts receivable went from $90.6 thousand in 2002 to $146.4 thousand in 2005. This is an increase of 62 percent (exhibit). The increase in accounts receivable can potentially lead to an increase in bad debt expense Inventory has increased from $468.3 thousand to $656.9 thousand. This is an increase of 40 percent (exhibit). These increases and decreases may or may not be beneficial to the business. Hortiman Horticulture’s revenues are growing year to year by an average of 9 percent. The business’s assets and fixed...
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