Food & Beverage: Cash Flow Problems
2nd October 2019
It’s a tough old game, food and beverages. In an industry where 9 in 10 startups fail, we need all the help we can get to succeed. If you get it right, there’s a huge market out there waiting to fill your coffers – food and beverage is the single largest manufacturing sector in the UK, turning over a cool £96 billion every year. That’s more than the aerospace and car manufacturing sectors combined!
There are a plethora of reasons that businesses in this industry fail. Some problems are hard to predict and even harder to plan for… those aren’t the problems I’m talking about today. This article is about something you can control and conquer… cash flow. Clocking in as the second-highest rated issue facing food and beverage manufacturers (17% of those surveyed rated it their number 1 issue!) it’s no small matter.
As you will know, food and beverages are a world of variables. Things can change and they change quickly, leaving the budding entrepreneur floundering in the face of increased costs and taxing delivery schedules.
With that said, let’s break down some of the typical industry cash flow problems:
A whopping 45% of F&B businesses experience issues with late payments, with some companies waiting on up to £40,000 in late payments at any one time. This might not be the end of the world for the big players, but for up-and-comers this is a real spanner in the works.
Research from Finance Derivative indicates that “UK SME food manufacturers recently saw a sudden increase in the amount of time they wait for payment from their customers, with average waits jumping from 44 days to 47 days.”
This seems to be, in part, due to supermarkets forcing suppliers to accept extended payment terms in response to the rise of discount supermarkets – with evidence suggesting that some UK supermarkets are in fact waiting for goods to be sold before even beginning the payment process.
Increased Material Costs
Every industry has this problem, but with F&B it’s particularly pronounced. Ingredients are sourced from every corner of the planet and with that, fluctuations in currency have a huge impact.
Typically, the Great British Pound has been fairly stable but certain political events *cough Brexit cough* have led to an overall decline in the value of our currency, along with regular peaks and troughs to boot. It seems like every time Boris Johnson speaks, we lose a few pence off the top and that fluctuation hits the pockets of F&B manufacturers.
A survey conducted by the British Chambers of Commerce discovered that 52% (oh, the irony) of manufacturers plan to increase their prices due to rising material costs as result of the weakened pound.
Another industry-specific issue that plagues even the most hardened F&B veteran. This category could fall into the one above – often production issues come with increased material cost – but there is so much more than can and will go wrong.
Working with fresh food, for instance, has its own catalogue of potential problems. From poor crops, to spoiling and everything in-between. If your banana shipment from Ecuador gets held up at the port of Guayaquil, not only are you missing production deadlines but with every second that passes your product is going bad in the heat. These problems are not limited to imported goods, either. Without meaning to beat the Brexit drum again, UK crops are already rotting due to a lack of migrant EU workers travelling here to pick fruit.
If you can’t get the product on time, for the agreed price, it’s going to throw a huge spanner in your delicately-balanced cash flow machine.
It might sound bananas, but it happens a lot!
“You’ve given me problems Emily, but no solutions!”
I hear you loud and clear! As I said at the start of this article, cash flow is something that can be well within your control: all you need is a competent senior finance professional to make that happen.
A good CFO or FD (the kind that I’d find for you J) will be aware of the potential pitfalls – the peaks and troughs of production issues, the seasonal trends, potential currency dives and more. Using this information, they will forecast, plan and prepare so that your cash flow experiences minimal impact along the way. This ability to get ahead of these issues and map previous hiccups is invaluable. Especially in an industry where cash flow problems can spell the end of a promising business.
“The biggest issues facing emerging food brands are funding, cash flow and getting distribution… the reality is that a good product isn’t enough to guarantee success”
Livio Bisterzo, founder of Hippeas
Senior finance professionals will also establish finance systems to send invoices quickly and establish processes for managing late payments; tantamount in a market where manufacturers are being squeezed by late payments and lengthened terms.
We can’t make the problems associated with food and beverage disappear, but we can help you find the right person to come into your business and mitigate the risks; giving you the very best chance of success in a difficult market. If you’re ready to get ahead of the problem, I’m here to discuss your needs any time.
0203 773 3530