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 Industry: Agriculture, Fisheries and Forestry
“It allows the team to easily understand the numbers and then drive improvement”
Rodney Coe, Managing Director
The SituationHSR Seeds is one of the nation's leading producers of hybrid grain sorghum, forage sorghum, sunflower, popcorn, and sweet corn seed. They are the largest provider of popcorn in Australia. They operate out of Queensland and Victoria.
The company have a goal of a 30% share of the domestic seed market, and an additional 15% of sales generated offshore. This profitable growth company was straining to meet the demand for operating cash flow. With a tightening of debt finance, HSR Seeds needed to get a better handle on their cash flow forecasting and strategy if they were to maintain growth and strive for profit margins of between 10-15%.
They knew they had a good product that would sell. HSR Seeds was looking for a better system for managing its working capital requirements and a tool for its technically skilled management team to really understand the financial impacts of its actions. Their CEO knew he was going to have to make some major shifts in how they operated.
The Solution
BusinessNAV was brought in to do a 2-day strategic planning day. Our approach is to use the financials and the cash flow structure of a business to drive strategy decisions. Prior to the strategy session we obtained the past, present, and future years’ Profit & Loss and Balance Sheet data and calculated their CashflowNAV Factor performance. We also calculated the Factor of a number of local and international listed companies in agricultural industries, which were used to benchmark against. All of this information was used in the strategic planning session.
CashflowNAV creates an index of each component of your Profit & Loss and the Working Capital components of your Balance Sheet to get a single number we call a CashflowNAV Factor. This single number becomes a target for management each month. Importantly the management team know what makes up that number.
The team had a current Factor and were able to develop a target Factor that they worked towards. Over the next day, the team then set about developing strategies to reach the new CashflowNAV Factor target. Businesses using the CashflowNAV online software application are able to use its Scenario Tool to make these adjustments on the fly and save them for reference and incorporation into Budgets and Forecasts.
“CashflowNAV has a good layout. Everyone could understand why the number was that number and how the strategy fitted in with that Factor,” said Rodney Coe, Managing Director. “People could see how what they do on a day to day basis impacts on the number [CFN Factor]”
“CashflowNAV makes finances real in terms of actions on the ground,” said Rodney. It is then the responsibility of the management team to analyse the strategies over following weeks. That is, are they realistic and achievable? The numbers are then formulated into a strategic plan and BusinessNAV consultants are available to review it with the team.
The Business Result
Each member of the management team came to better understand the financials of the business but more importantly the cash flow structure of business. And now had a tool to understand how their action directly impacted on cash - via the CashflowNAV Factor.
Amongst the changes to be made, HSR Seeds realised the significance of the cash being tied up in inventory. Due to the seasonal nature of the industry at times they had stock of up to 80% of the value of annual revenues. As a result the management team set some realistic stock limits that would not jeopardise sales or their good reputation with their customers. They are working to reduce their inventory to within those limits.
HSR Seeds have also made decisions on pricing and are reviewing terms of trade with some customers. HSR Seeds is actively seeking to move away from some financially in-efficient industry practices and norms in the best interests of their shareholders.
They have made significant financial improvements that don’t jeopardise their quality assurance systems. A management has renewed confidence in their ability to fund R&D to 7-10% of sales, which is a critical medium to long-term strategy for the company.
The company has set to improve its current CashflowNAV Factor by 70 cents in the dollar over 2 years. For a business that wants to grow by say $1M dollars that is freeing up $700,000 dollars worth of cash just by changing how they manage components of their business.
Within 2 months the whole management team had a coordinated approach using the CashflowNAV Factor as a key guide for strategy and a measure of the affordability of growth targets. They have a simple system for implementing their plans and will continue to use the CashflowNAV software in their business.
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