Cannery: a year of buying inside six weeks

“The year-end report says 3 768 000 ₴ net. And at the start of every year I am hunting for 14 400 000 ₴ and not sleeping for two weeks. One of those two numbers is lying. It took me four years to work out which one.”

Orest Danyliuk runs a small cannery in the Kherson region. Tomato paste, 500 g a jar, sold to regional chains and a handful of wholesale depots. The plant is in its eleventh year; Orest has owned it for the last four. Simple production, a market he understands, profit on the books. The profit is not the problem.

A plant that buys once a year

Tomatoes in the Kherson region run for six weeks. Not six months and not in waves — six weeks, as long as the field gives. In those weeks the plant takes 1 800 tonnes of raw material at 8 000 ₴ a tonne and processes everything it can reach.

The rest of the year is selling what has already been cooked.

In season 38 people come onto shift. Out of season 12 stay: warehouse, dispatch, bookkeeping, security. The line stands idle not for want of demand. It stands because there are no tomatoes.

• raw material is bought in 6 weeks
• processing ends in those same 6 weeks
• the selling stretches over 12 months
• the money comes back the same way — over 12 months

In theory you can haul tomatoes in from other regions and stretch the window to eight or nine weeks. Orest tried it. Tomatoes that had travelled more than four hours arrived bruised, gave a worse yield and spoiled the batch with their acidity. The logistics ate the idea itself.

Those four lines are the entire economics of the plant. Everything else follows from them.

There is one more route — store a semi-finished product in aseptic bags and finish cooking it through the year. The equipment for that costs as much as two lines, and the gain is flexibility of range, not cash in the season window. The tomatoes still have to be bought while they exist.

What one tonne of tomatoes gives

A tonne of fresh tomatoes yields 160 kg of paste. The rest is water, boiled off, and waste. So 1 800 tonnes of raw material give 288 tonnes of finished product.

A jar holds 500 g. That makes 576 000 jars.

Water is the biggest cost nobody thinks about. The plant buys 1 800 tonnes and sells 288. The rest it evaporates on its own gas.

The yield does not move because you want it to

Orest tried leaning on his technologist. It came out at 160, sometimes 157, once 162 — on a batch from a particularly dry field. The four-year average held at 160, and that is the number to plan on. Yield is set by the variety and the weather, not by the sales plan.

What a jar costs to make

The cost has two parts. Raw material and processing.

34 ₴ in a jar. Of that, 25 ₴ is the field, and the field has to be paid inside a six-week window. The 9 ₴ of processing falls due in the same weeks: gas, lids, shifts, wages for the seasonal crew.

Both parts are paid in one and the same window.

Where the 18 ₴ of margin comes from

The jar goes to the chains at 52 ₴. Take off 34 ₴ of cost and 18 ₴ of margin is left. That is an honest margin for a product that sits on the shelf next to the Turkish one and the Polish one.

“I know that number like my own surname. Eighteen hryvnia a jar. And when people tell me my plant is profitable, I nod. It really is profitable. I just somehow never have any money.”

The margin on a jar is true. It simply answers a different question from the one that hurts.

The year in numbers

12.6% net in food processing is a sound result. A bank would lend against a report like that without extra questions. Any consultant would say the business is healthy, and he would not be wrong.

Orest carried that report to the bank, showed it to partners and believed it himself. The report does not lie — all five of its lines are correct, built out of delivery notes and bank statements, and any audit will confirm them. It just answers a different question from the one that keeps him awake in season.

The profit report measures a year. The cash lives in weeks.

Why the report looks good

An annual report puts together what in real life lies apart. It takes twelve months of revenue and twelve months of costs, divides one by the other and shows a percentage. Inside that year there are six weeks when the plant hands over almost all its cash, and forty-six weeks when it collects it back in dribs. A percentage cannot show that.

That is not a flaw in the report. That is what it is for.

The report measures a year, the cash lives in weeks

The 3 768 000 ₴ of profit is the result of a whole year. It does not say which week the money ran out. And that is precisely what decides whether the plant reaches the next season without borrowing at inhuman rates.

Cost of goods does not show when it was paid

The line called cost of goods sold carries 19 584 000 ₴. The report spreads that sum evenly across the year, as the jars sell. In reality it left the till in six weeks. The difference between spread and left is the whole story.

The money that is not in the account

“My bookkeeper shows me: Orest, your net profit is three million seven hundred. I say — show it to me. She walks me into the warehouse and points at the pallets. Profit on pallets.”

Six weeks out of fifty-two is 11.5% of the year. Into that 11.5% the plant has to put 14 400 000 ₴ in a single wave. For scale: the whole year's revenue is 29 952 000 ₴. So in six weeks it lays out almost half of what the business will earn across all twelve months.

And that is before processing. With the gas, the packaging and the shift pay, 19 584 000 ₴ goes into the season window — two thirds of the year's revenue in six weeks.

At that moment there is no profit at all. There is a field to buy now, and buyers who will pay over the year.

How much stands in the warehouse

The paste sells evenly. A little more before the holidays, a little less in the heat, but with no collapses. So the average stock on hand is half the annual volume: 288 000 jars.

Each of them cost the plant 34 ₴. Together — 9 792 000 ₴ standing on pallets doing nothing. Not in the account, not in equipment, not in hand. On pallets.

That money would buy a second line. Or pay every fixed cost for a year and a half. Or mean never borrowing anything, ever.

The plant's net profit for the year is 3 768 000 ₴. The stock is 2.6 times bigger than that.

The plant does not sell paste. It finances a warehouse and is paid 18 ₴ a jar for doing it.

The season window

The window does not move

A shop can put its buying off by a month. A builder can shift a stage. The plant cannot. The tomatoes are either in the field now or gone until next year, and that is the one circumstance nobody can negotiate.

So every year the plant stands in front of the same choice. Buy the lot — and sit without cash for half a year. Buy less — and underload a line that already works six weeks.

• buy 1 800 tonnes: maximum output, maximum hole in the till
• buy less: the line is underloaded, part of the demand goes to competitors
• buy it all on credit: interest appears, but the volume stays
• top up out of season: the volume is there, the price is not

The farmer knows all this too. In the first week he holds his price, by the third he lets it go cheaper, in the last he will take almost the cost of transport. But by the last week the tomatoes are overripe and give a worse yield, so cheap raw material turns out expensive in the jar.

What was tried before

“My first season I took the lot, full volume. Bought 1 800 tonnes, cooked it, put it in the warehouse and sat without a kopeck until March. I paid the staff out of whatever the chains sent. The second season I decided to be clever and bought less. Turns out clever is expensive too.”

• full buying: a hole in the till for six months
• reduced buying: the line stands while 6 600 000 ₴ of fixed costs runs on
• prepayment from the chains: they give it, but they ask for a discount that eats the margin
• a bank loan: available, but for four years Orest read it as an admission of weakness

The prepayment looked the best of the four — until Orest counted the discount they wanted for it. It turned out prepayment is not free. Its price simply does not sit in a line called interest.

All four options Orest weighed by eye. Not one of them did he count to the end, and that is the main thing that changed afterwards.

Buy less, top up out of season

The scheme is simple. Take not 1 800 tonnes in season but 20% less — 1 440. The other 360 tonnes you buy out of season, already as semi-finished paste, from whoever put up more than he needed.

Out of season the price is a different animal: 14 500 ₴ against 8 000 ₴ a tonne in raw material terms.

360 tonnes at 14 500 ₴ is 5 220 000 ₴. The same 360 tonnes inside the season window would have cost 2 880 000 ₴.

The volume is identical. The same number of jars, the same revenue, buyers notice nothing. Two numbers change: the plant overpays 2 340 000 ₴ and cuts its peak cash need by 2 880 000 ₴.

The price of a quiet night

So a quiet night is for sale. It costs 2 340 000 ₴ a year to take 2 880 000 ₴ off the peak. For two seasons Orest treated that as a good decision and never checked the alternative.

The curious part is that he never once called it an overpayment. In his head it was the out-of-season purchase — a separate operation with its own logic, not 2 340 000 ₴ lifted out of the profit. The name hid the sum.

The overpayment is paid for ever

2 340 000 ₴ of overpayment is 62% of the year's net profit, simply gone. And gone every year, because the scheme is not a one-off: every season the plant again buys part of its raw material at double the price.

“I explained it to myself like this: better to hand over two million and sleep than to have it and shake. Until my son sat down with a calculator and asked why I do not take a loan. I told him something about how we have never borrowed.”

A loan against an overpayment

To close that same peak you have to borrow 2 880 000 ₴. Not for a year — the cash is missing in the season window and it comes back out of sales over the following months. The real term is 8 months.

The bank looks at this more calmly than the owner does. For a bank a seasonal loan to a processor is a classic: there is collateral in the form of finished goods, the term is short, the source of repayment is obvious. Refusals here are rare.

Interest belongs in the cost too

At 20% a year over eight months that is 384 000 ₴ of interest. A real cost, to be laid into the cost of a jar next to the gas and the lids. You cannot leave it out.

But there is something to compare it with. The overpayment for out-of-season raw material is 2 340 000 ₴. The interest on a loan that closes the same hole is 384 000 ₴.

The loan is 6.09 times cheaper.

For two years Orest paid 2 340 000 ₴ for something that cost 384 000 ₴.

What changed the next year

“The worst part was not that I overpaid. The worst part was that I called it caution. The overpayment felt like my own decision and the loan like somebody else's. They are just two price tags on one and the same service.”

The next season the plant took all 1 800 tonnes inside the window. The raw material came to 14 400 000 ₴ instead of 16 740 000 ₴. The peak was closed with a loan, the interest came to 384 000 ₴, and for the first time Orest put it as its own line in the cost of a jar.

• raw material: 14 400 000 ₴ instead of 16 740 000 ₴
• interest: 384 000 ₴ — a new cost, and a visible one
• the difference in the loan's favour: 1 956 000 ₴ in one season
• volume and margin: unchanged, 576 000 jars at 18 ₴

Three numbers for a weekly look

Orest boiled the whole thing down to three numbers he now checks once a week. None of them is profit.

All three can be counted before the season even starts.

Stock is measured in jars, not in hryvnia

Hryvnia in stock move with revaluation and frighten you for no reason. Jars do not lie: 288 000 in the warehouse is exactly half a year of selling. If the number climbs, the selling is behind plan, and you see it in two weeks instead of in an annual report.

There is deliberately no fourth number on the list. Orest tried running a dozen indicators and gave it up after two months: the more lines there were, the less often he looked at any of them. Three numbers he has checked every week for a second year now.

The second number is the peak cash need inside the season window. It is counted three months before the window opens now, not on the day the first farmer calls.

The third is interest per jar. 384 000 ₴ over 576 000 jars is less than a hryvnia. While that figure stays under a hryvnia, a loan beats an overpayment and there is nothing to argue about.

The money does not vanish — you simply do not see it

“For eleven years I counted the margin on a jar and was sure I understood my plant. And I was missing the main thing: I do not sell paste, I finance a warehouse. Once that became a line in a report instead of a feeling, it turned out the cheap answer had been lying beside me for four years.”

Orest's plant did not become more profitable because of one number. It became more predictable. The margin stayed 18 ₴, the revenue 29 952 000 ₴, the yield 160 kg a tonne. The only change is that the peak cash need stopped being an unpleasant surprise and became a line you can see coming.

The 18 ₴ of margin has gone nowhere and has not grown. It simply stopped being the only number an owner uses to describe his plant.

Six weeks of the year still decide everything. The difference is that the plant now spends twelve getting ready for them.

How to see this at your own plant

Everything above rests on two lines the profit statement does not carry: how much cash the season window demands, and how much of it stands in the warehouse for the rest of the year. While those lines live in someone's head, the plant solves the same problem from scratch every year — and overpays either for raw material or for money. When buying, stock and sales come together automatically in one place, the season window is visible three months before it opens — which is exactly why owners of small and medium businesses use Finmap: to see the financial picture instead of reconstructing it from memory.

Read also

• The harvest is good, but there is no free cash: seasonal cash flow and margin by crop
• Profitable but broke: the cash frozen in components and work-in-progress

Topic foundation: Management Accounting Explained: What It Is and Why Owners Need It