Cheers! Funding a growing microbreweryPublished on 10th October 2018 2018-10-10T22:30:40+00:00
There has been a revolution in British drinking habits over the last few years. Where a previous generation was content to quench its thirst with lager from industrial brewers, today’s drinker has become much more selective. He or she has tried and rejected the offerings of the big brewers and is choosing, instead, to enjoy the new breed of craft beers.
Alcohol sales are down - but craft beer sales are definitely on the rise. This is, of course, very good news for Britain’s growing numbers of microbrewers. Microbreweries are continuing to open every month around the country and while many start out as little more than a hobby, many craft beer producers can grow to become successful businesses in a very short space of time.
At Rangewell, we work with several microbreweries who have discovered that, in order to make the most of their success, they needed funding as well as a passion for their product.
What’s behind a successful microbrewery?
A mash tank, lauter tun and fermentation tank, plus some pumps and heaters, may actually be all that is required to brew beer. Quality ingredients, pure water and the skills of the brewer are, arguably, even more important.
Many brewers often start brewing in their kitchen. From there, switching to a commercial basis may be possible with minimum investment in brewing and bottling equipment, and suitable premises.
It is entirely possible to develop a small, but loyal, following for a craft beer produced in small batches for as little £5,000, using a combination of new and secondhand equipment. Costs will rise as the size of vessels – and batches produced – grows. A £10,000 installation might produce around 400 litres of beer with each cycle and a larger 12-barrel brewery, producing 2,000 litres or more, could set you back between £50,000 to £80,000. Funding this kind of investment from your turnover may be difficult, but lending solutions do exist for precisely this and include both Secured Loans and Asset Finance solutions.
However, the cost of buying in production equipment may not be the biggest challenge to the small brewer who wants to scale. The real issue may actually be cash flow, even when your operation is selling in sufficient quantities to generate a profit. Customers may be keen to buy your beer but slow to pay for it. Large retailers, in particular, may have long payment arrangements, which could leave you short of the funds you need to operate your business and to fund the next production batch.
This had become a major problem for a craft brewery that we recently worked with. Based in a converted farm outbuilding in Sussex, they had a growing following for their beers.
“We had plenty of people keen to stock our brews, but the more we made, the more cash we seemed to need.”
Things had been simple when the business started out and was delivering kegs to local pubs and bars. Payment was often in cash. As demand grew and they began bottling, they had to put the operation on a more businesslike footing, and started issuing invoices.
“The bars we were already supplying were not a problem, and settled our invoices fairly quickly. But when we started providing dozens to bars in larger towns nearby and becoming a guest beer, we had to start working on the same basis as big brewers.”
Our client was waiting for up to a month to get paid, which was causing them problems. The business simply did not have the necessary cash reserves to cope with this delay.
“We needed to get cash in to get on with brewing the next batch. It’s not so much the ingredients - water, barley and hops are not high-cost items. It was the overheads and the staff costs, since we’ve had to take on a couple of people.”
The problem was getting worse, and became serious when an upmarket retailer became interested in stocking the brewer's products. The orders would be large enough to need our client to bring in more equipment capable of producing bigger batches, but the payment terms, which could, in practice, be a month would mean no income to fund operations, let alone expansion.
Cashflow is a major challenge for every small business, and having to wait weeks for invoices to be paid can trigger a cashflow crisis – but there are ways to help.
If your small business works to provide goods or services to large businesses, late payments could put pressure on your cash flow. Call us to see how Invoice Finance could provide answers, and which type of facility is right for you.
We saw that the solution could be an Invoice Finance arrangement which would provide cash advances based on the value of invoices issued, but are yet to be paid by the customer.
“You get paid as soon as you invoice. So the more we brew, and the more we sell, the more cash we have.”
With Invoice Finance, a funding provider will use your invoices as the security for the cash advances. Instead of waiting for your customer to pay, which can be a major headache with large retailers and supermarkets, it can mean getting paid as soon as you make a delivery. It can avoid a cashflow crisis while you wait weeks to get paid. What’s more, by ensuring your cash coming in always keeps pace with products being sent, it can help ensure you always have the funds you need to support further growth.
There are several types of Invoice Funding to consider, but we believed our brewery client would be best served by an Invoice Factoring arrangement.
Invoice Factoring - a turnkey solution for smaller companies
With Invoice Factoring, you send a copy of the invoice to the finance provider as well as your customer. The finance provider will buy the debt from you, and pay you a percentage - usually 85% - right away. They will then collect the full amount directly from all your customers. It means outsourcing all the activities of credit control, freeing up your time for your core business.
Once the finance provider has received the money they will send you the remaining balance, less their interest charges and fees. Your customers will know your business is using Invoice Finance, but you will have the advantage of highly professional credit management, with collection and credit checking at no extra cost to your business.
We found a lender with experience in the microbrewery sector which could offer the most cost-effective rates and helped our client make the necessary arrangement.
“We saw that slow paying customers were a real threat to our future, so we turned over our sales ledger to an invoice factorer. Our cashflow problems were instantly over.”
At Rangewell, we work closely with our clients to understand their needs before we recommend a particular type of finance. If you are thinking about an Invoice Finance solution, talk to our experts or apply today. Our service - and their expertise - is absolutely free.
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