Ratios and benchmarks as tools for local food hub decision-making: a comparative case study

Savanna May Lyons

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: Food hubs, or local food aggregation and distribution businesses, are triple-bottom-line firms that play an increasingly important role in connecting small and mid-sized farmers to wholesale and retail markets. This paper explores how food hubs can use their financial data to identify and address strengths and challenges in their operations. We propose a “dashboard” of key metrics and benchmarks for food hub managers, and apply it a comparative case study of four food hubs over three years of operations. We compare and contrast the liquidity, cash flow, efficiency, solvency and repayment capacity of the four cases, and analyze cross-cutting themes.We find that although the food hubs varied in their business structure and composition of sales outlets, they all faced the challenges of limited working capital, labor inefficiencies, high debt-asset ratios, and limited profitability. Some firms were able to break even below the $1 million sales level typically cited as a food hub breakeven point, but still struggled to maintain positive profits, suggesting that they remained in a “breakeven” phase even as they grew. All of the food hubs owned relatively few fixed assets and used relatively little term debt from outside sources. Modest net worth and small total asset size left each firm vulnerable to insolvency in years of negative profit. However, with bootstrapping techniques such as renting or sharing equipment and collecting payments quickly, in general they used their assets efficiently.We evaluate the usefulness of our metrics and benchmarks in analyzing food hubs, and offer suggestions on how recordkeeping could be improved to make financial analysis easier. Finally, we return to the literature to make recommendations for managers on resolving challenges seen in the metrics, including problems with cash flow, solvency, labor efficiency and turnover, inventory management, and pricing.

Date: 2016-01-01
New Economics Papers: this item is included in nep-agr
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